IREN's Microsoft Deal Bolsters AI Ambitions, Yet DeepValue Report Highlights Overvaluation and Financial Risks

What happened

IREN Limited announced a $9.7 billion, five-year contract with Microsoft, positioning itself as a vertically integrated AI-infrastructure operator with access to low-cost power and a significant upfront payment of $1.9 billion. This news portrays the company as building a formidable moat through early land and power acquisitions, enabling rapid AI data center expansion amid industry delays. However, the latest DeepValue master report reveals that IREN's business remains heavily reliant on Bitcoin mining, with AI Cloud contributing only 3-4% of FY25 revenue despite aggressive expansion efforts. The report flags high valuation multiples, such as an EV/EBITDA of 58x, volatile earnings driven by unrealized gains, and balance-sheet risks including $0.99 billion in convertible notes due 2029-2030 with negative interest coverage. Overall, while the Microsoft deal adds credibility to IREN's strategic pivot, it does not mitigate the core financial vulnerabilities and overvaluation concerns detailed in the filings.

Implication

The Microsoft deal provides near-term revenue validation and de-risks some capital outlay for IREN, potentially accelerating its AI infrastructure growth. However, the company must significantly scale AI Cloud beyond its current low revenue share to justify the elevated stock price, which already discounts a bullish Bitcoin and AI demand scenario. Investors should closely monitor AI revenue mix and utilization rates, as failure to diversify could expose the stock to Bitcoin price volatility and regulatory headwinds. Balance-sheet risks, including upcoming convertible note maturities and a history of aggressive equity dilution, threaten shareholder value if refinancing proves costly. Consequently, the stock remains a leveraged bet on external factors, with limited margin of safety against operational or market downturns.

Thesis delta

The Microsoft contract introduces a positive catalyst by confirming IREN's AI infrastructure capabilities and providing upfront capital, but it does not fundamentally alter the bearish thesis outlined in the DeepValue report. Key risks such as high valuation, volatile cash flows, and balance-sheet fragility persist, and AI Cloud must achieve material revenue contribution to shift the investment case from a SELL to a HOLD or BUY.