IREN's $9.7B Microsoft Deal Amplifies AI Hype, But DeepValue Report Flags Persistent Overvaluation and Risks

What happened

IREN Ltd. recently secured a $9.7 billion deal with Microsoft, as touted in a Motley Fool article positioning it as a top AI stock for the next decade. However, the latest DeepValue master report reveals that IREN's stock has surged 318% over the past year, embedding overly optimistic expectations for its AI pivot amidst volatile Bitcoin dependence. Critical analysis shows that AI Cloud Services contributed only $16 million to FY25 revenue of $501 million, with reported profitability heavily driven by non-cash mark-to-market gains rather than sustainable core operations. Despite the Microsoft agreement, IREN faces significant headwinds including high valuation multiples (EV/EBITDA ~58x), weak interest coverage, past governance issues like going-concern warnings, and reliance on dilutive financing for multi-GW expansion. This juxtaposition highlights that while the deal may bolster IREN's narrative, it does not immediately mitigate the fundamental financial and operational vulnerabilities detailed in the DeepValue analysis.

Implication

The $9.7 billion Microsoft deal could accelerate IREN's AI revenue growth, potentially diversifying its income away from cyclical Bitcoin mining if implemented successfully. However, execution risk remains high due to IREN's limited experience in AI/HPC, intense competition from hyperscalers, and reliance on external capital for GPU deployments and data-center build-outs. Financially, the company's balance sheet shows dependence on dilutive equity and convertible notes, with volatile free cash flow and negative interest coverage underscoring liquidity concerns. Valuation metrics, such as a DCF yielding negative intrinsic value, indicate that current stock prices assume flawless execution, leaving little margin of safety. Therefore, while the deal adds a tangible customer commitment, it does not justify the stock's premium or alter the need for cautious monitoring of AI traction and cash generation before considering an investment.

Thesis delta

The Microsoft deal introduces a new, high-value customer that could enhance IREN's AI revenue visibility and support its pivot narrative in the medium term. However, it does not materially shift the core thesis from 'POTENTIAL SELL,' as IREN's overvaluation, reliance on non-cash gains, and operational risks persist, requiring demonstrable improvements in AI economics and self-funded cash flow before a re-rating is warranted.