Jefferies expects IREN's AI cloud business to outpace data center leasing, sees 30% upside

Jefferies initiated coverage of bitcoin miner-turned-AI infrastructure provider IREN with a $79 price target, projecting that the company's strategy of operating its own AI cloud infrastructure will be more valuable than leasing data center capacity in the long-term.

The investment bank said (IREN) is unique among its publicly traded AI infrastructure peers, mostly due to its large power portfolio, owned data center assets, and growing GPU cloud business.

Jefferies estimates that the company has access to roughly 6 gigawatts of secured power globally, but that only around 10% of that is being utilized.

According to the firm's analysis, IREN's GPU cloud strategy could generate higher total cash flows than reverting facilities to focus on a colocation model when looking at a timeline of 10 to 20 years.

At that point, the gap starts to widen, with Jefferies estimating returns of roughly 21% on its AI cloud buildout versus 13% under a colocation model, according to notes shared by VanEck's Head of Digital Asset Research Matthew Sigel.

"Anchored by investment-grade tenant credit, the Microsoft and Nvidia contracts position IREN to deliver $3.1 billion of annual recurring revenue," Jefferies wrote, according to the summary shared by Sigel.

Jefferies also highlighted IREN's balance sheet strength. After accounting for GPU and data center spending, the firm estimates IREN has roughly $250 million for future projects, though Sigel argues that number is conservative and could be closer to $900 million when taking recent capital raises into account.

IREN expanding globally

The initiation comes amid a major expansion of IREN's global AI footprint. Earlier this week, the company announced the acquisition of Spanish AI data center developer Nostrum, adding around 490 megawatts of grid power in Europe.

Weeks earlier, IREN also unveiled plans for an 800-megawatt data center campus in South Australia to serve AI demand across the Asia-Pacific region.

IREN shares were up 4% on Wednesday afternoon, trading at about $60.50, implying roughly 30% upside to Jefferies' $79 price target.