IREN's 371% Stock Surge Highlights Valuation Disconnect Amid Cash Burn and Rising Liabilities

What happened

IREN's stock price has skyrocketed 371% over the past six months, reflecting market optimism about its renewable-powered data centers and expansion into Bitcoin mining and AI Cloud Services. This dramatic increase, however, obscures severe financial challenges, including a negative free cash flow of $1.13 billion in FY25 and liabilities that surged from approximately $56 million to $1.12 billion. Earnings remain dominated by Bitcoin mining, which is highly cyclical, while the nascent AI segment contributed only $16.4 million in revenue last year, facing stiff competition. Profitability has improved, but significant portions of net income are driven by non-cash gains, and ongoing ATM equity issuance continues to dilute existing shareholders. At a trailing P/E of 17x and EV/EBITDA of 57x, the valuation appears inflated relative to these underlying risks and the company's inability to generate sustainable cash flows.

Implication

Investors should be wary of IREN's rich valuation, which is not supported by its cash generation, with free cash flow deeply negative and capital expenditures likely to remain high. The balance sheet's deterioration, with liabilities ballooning and interest coverage negative, increases financial risk and could strain operations if market conditions worsen. Heavy reliance on Bitcoin mining exposes the company to price volatility and regulatory headwinds, while the AI business is too small to offset these risks effectively. Management's strategy of funding growth through dilutive equity raises concerns about shareholder value erosion if expected returns fail to materialize. Without clear progress toward positive free cash flow and meaningful AI revenue growth, the current stock price may be vulnerable to a significant correction.

Thesis delta

The new article reinforces the DeepValue report's 'POTENTIAL SELL' thesis by emphasizing that IREN's stock surge is not backed by improved fundamentals. No material shift is warranted; however, the heightened valuation after the surge increases the urgency for monitoring cash flow and balance sheet metrics.