"We are upgrading $IREN (-4,23%) to Overweight. We see IREN establishing itself as a top tier neocloud provider, backed by its strategic partnership with NVIDIA. The company has gained momentum in signing customers and industry pricing has moved up substantially. Neocloud contracts have gone from $10-15/W to $15-20/ W and higher today depending on delivery, GPU generation, and contract duration.
Customer pre-payments, which help fund GPU procurement, have ranged from 25-50% and we expect pre-payments to remain a part of future neolcoud deals. IREN has increased its calendar year-end 2026 expected ARR from $3.4b last November to $3.7b in May of this year and, most recently, up to $4.0b. The company has $1b in operating ARR today and delivered the first (Horizon 1) of four 50 MW buildings (200 MW total; capacity as IT unless noted) under the contract with Microsoft. Horizon 2-4 (150 MW total) are expected to be delivered by the end of calendar 2026.
The company's largest contract announcements are with Microsoft and Nvidia, but an unnamed recent signing is a multi-year contract with a leading frontier Al lab. IREN has also signed deals with Prometheus, Figure Al, Perplexity, Together Al, Fluidstack, Hume Al, Fireworks Al, Fal Al, Higgsfield, and Cohere. While the company has laid out its plans to spend $25-30b of capex in FY27, along with substantial increases in opex, we believe the company's ~0.5 GW expansion in 2027 could be signed at materially higher prices than past deals in the $12-15/W range. Any contracts above $15/W would be highly accretive to financials.
We do see some near-term risks for the 2027 pipeline, derived from the current audit on data center interconnection requests in Texas. If the audit and verification process persists beyond the mid-terms in November, projects could see delays in development timelines. As a positive development, IREN last week announced Sweetwater 1 and 2 had both been conditionally included in ERCOT's Batch Zero process as Base Load.
We move to an Overweight rating and establish a Dec-27 PT of $65 (vs. a Dec-26 PT of $46 prior)."
