IREN's $25 billion-$30 billion AI buildout may have 'spooked' investors, Bernstein says

IREN's plans to spend $25 billion to $30 billion building out its AI cloud business in fiscal 2027 may have "spooked the market," according to analysts at research and brokerage firm Bernstein, who argue investors are overlooking improving economics as the bitcoin miner scales its compute infrastructure.

"The high capex number may have spooked the market, but the investors seem to ignore improving unit economics with faster payback on incremental capex," analysts led by Gautam Chhugani wrote in a note to clients on Friday, viewed by The Block. Bernstein estimates the payback period on GPU capital expenditure has fallen to around two years, compared with roughly three years under IREN's 2025 Microsoft contract.

IREN's fiscal 2026 results, released Thursday, showed AI cloud services revenue increased nearly eightfold to $128.8 million in fiscal 2026 from $16.4 million the previous year, while bitcoin mining generated $578.2 million, up 19% year over year.

IREN's total revenue rose to $707 million from $501 million, though the company swung to a $702.6 million net loss from $86.9 million in net income in 2025, partly reflecting $638.8 million in impairments as it decommissioned bitcoin mining hardware to support its AI cloud expansion, the firm said.

IREN shares are down 6.3% at $37.96 in pre-market trading on Friday following the results, but remain up 15.8% over the past month and 74.9% over the past year.

Improving AI cloud economics

IREN generated about $10 million in annual revenue per IT megawatt under its Microsoft agreement, compared with more than $20 million for recently signed three-year contracts, Bernstein said. The company is also discussing three-to-five-year deals at around $25 million per IT megawatt, according to the analysts.

IREN currently has $1 billion in operating cloud annualized run-rate revenue and $4 billion contracted against its largely sold-out 2026 capacity. Including another $700 million associated with an Nvidia contract expected in 2027, IREN's total contracted cloud ARR amounts to $4.7 billion, according to Bernstein. IREN is in advanced discussions over a significant portion of its 2027 capacity, with early conversations underway for 2028, the analysts said.

Bernstein said IREN has secured $19 billion over the past 12 months through customer prepayments, GPU financing, convertible debt, and equity issuance to fund the expansion, with about $14 billion either still held in cash or yet to be drawn. The analysts expect another $8 billion from new GPU financing and prepayments, with operating cash flow, data center financing, and other sources contributing the remaining $3 billion to $8 billion in buildout costs. 

"Site optimization is also increasing the revenue potential of every megawatt," Roberts said in the earnings release. "With increasing availability of a broad range of capital sources to fund our expansion, we are well positioned to keep compounding as the structural shortage of compute deepens."

On Thursday, CoinShares Head of Research James Butterfill said that grid connection times for new U.S. facilities are now averaging around five years, potentially benefiting bitcoin miners like IREN that already control powered infrastructure that can be repurposed for AI.

Bernstein maintained its Outperform rating and $100 price target on IREN, versus Thursday's closing price of $40.53, implying potential upside of 147%.

Gautam Chhugani maintains long positions in various cryptocurrencies. Bernstein's parent company and/or its affiliates beneficially own 0.5% or more of the total issued share capital of IREN.