Iris Energy Limited Accelerates Expansion Amid Bitcoin Bull Market

Summary Iris Energy Limited leverages 100% renewable energy for Bitcoin mining and AI/HPC services, prioritizing sustainability and scalability for future growth. The company is accelerating Bitcoin mining capacity expansion, targeting 50 EH/s by mid-2025, supported by advanced hardware like S21 Pro miners. With low-cost Bitcoin production at $29,000 per coin and competitive efficiency metrics, IREN is well-positioned for profitability despite price volatility. The Sweetwater data center project, with 1.4GW capacity, highlights IREN’s ambition to scale AI/HPC services alongside Bitcoin mining operations. Despite high Q3 CAPEX, IREN remains undervalued, with a forward P/S ratio of 2.2 and growth prospects in a bullish crypto market. Iris Energy Limited ( IREN ) continues at the forefront of sustainable innovation in its three business areas: Bitcoin mining, high-performance computing [HPC], and artificial intelligence [AI] cloud services. The company has successfully expanded its operations across North America and Australia, using exclusively renewable energy. IREN’s main focus is cost efficiency, scalability, and infrastructure innovation to capitalize on the demand for digital technologies. IREN’s fast growth, with expected production of 50 EH/s by mid-2025, and cutting-edge initiatives in AI and HPC position it favorably in these niches. Also, IREN’s valuation still appears reasonable, especially considering its upcoming growth with Bitcoin’s ongoing bull market. Thus, I reiterate my “Buy” on IREN for long-term investors seeking exposure to the green energy and bitcoin mining sectors. Promising Secular Tailwinds: Business Overview At its core, Iris Energy is a data center company specializing in bitcoin mining, high-performance computing [HPC], and Artificial Intelligence [AI] cloud services. It was founded in 2018 and is headquartered in Sidney, Australia, with operations across North America and Australia. Since my article from December 2023, IREN’s stock has substantially appreciated. The key aspects of IREN are its ongoing expansion, focus on renewable energy, and commitment to environmental responsibility. Source: Q1 FY25 Results Presentation. November 26, 2024. Currently, IREN’s primary business area is Bitcoin mining , which reached 31 exahashes per second [EH/s] by the end of Q3 2024. Thanks to the operation of its site in Childress County, Texas, the company is preparing to grow its mining capacity to 50 EH/s by 1H2025. This is much faster than the initially anticipated date timeline of 2H2025. In fact, Childress was designed with infrastructure to support substantial power expansion of up to 50 megawatts monthly. IREN can scale up mining and install new hardware like the S21 Pro miners’ machines. It’s worth mentioning that S21 Pro machines are advanced Bitcoin miner devices that work very efficiently. The company has pre-purchased this mining equipment at $18.9 per terahash [TH]. For context, TH is a unit of computational power used to obtain the solution of cryptographic puzzles in the blockchain. Also, IREN secured its S21 Pro miners at a fixed price, which should hedge it from future potential cost increases due to a rapidly appreciating cryptocurrency bull market in 2025. This way, the company can ensure financial predictability. Source: Q1 FY25 Results Presentation. November 26, 2024. The fast growth of the digital world, particularly Bitcoin mining, contrasts with the slower pace of the physical infrastructure required to support it. The current power usage for the Bitcoin mining network demands more than 20 gigawatts (GW) of electricity, and the consumption rises as mining activities expand. Thus, this strains the electricity supply and infrastructure. For instance, if the price of Bitcoin increases to $150,000 , mining will become more profitable, and miners will be incentivized to expand operations. However, such expansion would require an additional 7GW of power capacity. This would translate into an additional power generation and facilities CAPEX of approximately $9 billion . The infrastructure needs time to be developed, and it is a bottleneck in the network expansion that delays mining activities. Source: Q1 FY25 Results Presentation. November 26, 2024. Fortunately, IREN produces a low-cost Bitcoin, with a competitive cost of approximately $29,000 per Bitcoin at a hash rate of 31 EH/s. This cost is lower than many competitors due to highly efficient hardware that reduces energy consumption. Other factors for the low price are the lower electricity costs in Childress, Texas, and the economy of scale that decreases the cost per unit mined. IREN’s cost-efficiency is an advantage for the company and positions it for better profitability, even when Bitcoin may lower its prices. Notably, the internal cost for IREN to run 1 EH/s of Bitcoin mining is $30 million, while the market valuation for this capacity is $120 million, highlighting the company’s efficient cost structure. This efficiency ensures high returns, with investments in miners and data centers achieving a payback period of two years. Moreover, the scaling from 31 EH/s to 50 EH/s greatly improves profitability, reinforcing IREN’s competitive position. Source: Q1 FY25 Results Presentation. November 26, 2024. Lastly, IREN’s other two business areas, AI and HPC , provide an additional diversification layer. For example, the company invested in advanced liquid cooling systems and NVIDIA GPUs to improve performance and efficiency. Also, IREN has installed 1,896 NVIDIA H100 and H200 GPUs to prepare to scale operations in response to customer demand. Transformative 2025: Power, Profit, and Potential IREN updated investors on its Sweetwater data center project in its latest quarterly report . The substation that will power the site will be operational in 15 months, ensuring the infrastructure the project needs. Sweetwater will deliver 1.4GW of power capacity, making it one of the largest power sites in the world. It is designed with 90 EH/s mining capacity and potentially hosts up to 800,000 GPUs for HPC activities. Meanwhile, Bitcoin reached historic highs in November 2024. However, Bitcoin is inherently volatile, so it remains an underlying risk for IREN. Despite this, Donald Trump’s electoral victory has fueled optimism, as he ran on a pro-crypto agenda . Analysts anticipate a favorable political and regulatory environment that could encourage Bitcoin adoption, including discussions around the possibility of using Bitcoin as a treasury reserve asset . Source: Seeking Alpha. Moreover, IREN announced it may also start distributions to shareholders in 2025. In theory, these distributions will be supported by increased cash flows from scaling activities and a focus on alternative funding instruments. So, for now, I think IREN’s scaling strategy, low-cost expansion, cryptocurrency tailwinds, and HPC markets make it well-positioned for long-term success. Growth Ahead: Valuation Analysis From a valuation perspective, IREN now trades at a $1.8 billion market cap, making it a midsized company in its sector. This is up roughly 143.5% since I covered it in December 2023, showing that the bull thesis I outlined back then is playing out. As of Q3 2024, its balance sheet held $98.6 million in cash and equivalents against no financial debt. Its book value stands at $1.1 billion, indicating a P/B of 1.6, which inherently denotes a moderate premium. For comparison, its sector’s median P/B is 3.3. Naturally, most of IREN’s book value stems from its PPE worth $966.0 million. Source: Seeking Alpha. Furthermore, according to Seeking Alpha’s dashboard on IREN , the company is projected to generate $809.0 million in revenues by 2026, suggesting a forward P/S of 2.2. This is actually much more reasonable compared to its sector’s median forward P/S of 3.2 . Thus, I think, on balance, IREN’s valuation multiples still appear undervalued in light of its impressive forecasted revenue growth and underlying assets. Moreover, I estimate IREN’s latest quarterly cash burn reached $391.0 million by adding its CFOs and Net CAPEX. This is the company’s main drawback, implying a cash runway of just 0.3 quarters. Thus, it’s evident that there’s a high likelihood of an equity raise relatively soon. Alternatively, I suppose IREN could tap into debt as well, especially since its growth is ramping up rapidly, and its balance sheet isn’t levered at this point. In my view, debt is probably the better choice because it avoids dilution and will probably be manageable, assuming IREN’s future revenue growth materializes. Source: IREN’s latest quarterly report. Additionally, it’s worth mentioning that Q3 2024 seems to have been an unusually capital-intensive quarter for IREN. Using the same approach as before, in Q3 2023, IREN’s cash burn was much more manageable at just $13.9 million . The main discrepancy in these two periods is that IREN seems to have made sizeable CAPEX on PPE and computer hardware for its operations. In my view, this seems reasonable, especially if we assume that the current Bitcoin cycle will probably last until 2025. In fact, I think this large CAPEX ahead of 2025 positions IREN perfectly to capitalize on Bitcoin’s ongoing bull market. Investment Caveats: Risk Analysis So, no additional raises may be necessary if IREN’s focus now transitions into maximizing its recent CAPEX. Moreover, IREN’s margins will likely improve as Childress scales up . Moreover, looking at IREN’s results in Q3 didn’t benefit from the recent Bitcoin price increase to over $90,000 . Those tailwinds will show up in Q4 2024, and there’s a material improvement at those price levels for IREN. Thus, I think it’s fair to remain bullish on IREN into 2025, so I reiterate my “Buy” rating. Source: Q1 FY25 Results Presentation. November 26, 2024. Unfortunately, this is also IREN’s main risk. If the price of Bitcoin declines significantly, it will undoubtedly put pressure on IREN’s revenues and margins. Moreover, it could be a double whammy for the company because it’s rapidly ramping up its CAPEX to capitalize fully on the current cryptocurrency bull market. Similarly, I would like to see IREN now pivot towards bolstering its balance sheet to endure any economic downturns, especially since its revenues are tightly linked to a highly volatile industry. Source: TradingView. Therefore, if IREN fails to capitalize on these current tailwinds or overexpands and doesn’t prioritize its balance sheet, it could lead to significant shareholders post-2025. My bear case for IREN is that by 2025, the company’s balance sheet may not improve enough, and the crypto bull market will end. If that occurs, it could catch IREN off balance, especially after such a massive ramp-up in PPE ahead of 2025. Nevertheless, as it stands today, if management now focuses on prudently reaping the rewards of this bull market , IREN could emerge post-2025 as a premier green cryptocurrency mining operation. Reiterated “Buy”: Conclusion Overall, I think IREN’s latest quarterly results are quite promising. The only yellow flag is that I see a major CAPEX commitment in Q3, which should pay off nicely in Q4 and 2025. After all, Bitcoin didn’t spike above $90,000 until November 2024. So, those tailwinds will show up in subsequent reports. However, IREN needs to adopt a more prudent capital allocation approach now and focus on riding the Bitcoin wave rather than risking over-expanding. Still, I feel it’s fair to reiterate my “Buy” rating on IREN due to its compelling valuation, forecasted revenue growth, and promising secular tailwinds.

Source: Seeking Alpha