Iren Ltd. (NASDAQ:IREN) has been transitioning itself from being a Bitcoin miner into a major neocloud provider. The company has been leveraging its massive power infrastructure to provide AI cloud compute for tech giants such as NVIDIA Corporation (NASDAQ:NVDA) and Microsoft Corporation (NASDAQ:MSFT). No wonder one Wall Street firm believes compute scarcity and higher prices could validate the company's capex-heavy neo-cloud strategy.
On August 13, Bernstein SocGen Group analyst Gautam Chhugani reiterated an Outperform rating on IREN with a $100.00 price target. This target implies roughly 120% upside from current levels. Wall Street has been skeptical of IREN turning from a Bitcoin miner into a neocloud provider.
Bernstein has acknowledged this categorical bias, noting that it suffers from a technological gap. However, IREN hasn't gone the traditional pathway of pursuing a relatively capex-light colocation model. Instead, it has chosen to invest heavily in its own cloud infrastructure, which is what makes it stand out.
A colocation model involves a company developing the data center, securing power, and providing the infrastructure. The customer then signs a lease and installs its own GPUs. Since the operator offers the powered data center capacity rather than underlying compute, it generates significantly less revenue per MW.
IREN's cloud model differs since it owns the GPUs and sells computing capacity directly to customers, allowing it to capture more revenue from the underlying capacity. Bernstein believes that IREN has made a smart choice provided it operates in a compute-scarce environment. It noted how a neocloud operation could generate around $10 to $20 million per MW, compared to just $2 to $2.5 million per MW through the colocation leasing model.
This represents an estimated 5-10 times more dollars per MW. The Wall Street firm also believes that IREN has got what it takes to move up the cloud model's value curve over time. This would allow the company to capture more of the economics related to AI compute.
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