Wall Street has maintained a bullish stance on IREN (IREN) for months, drawn to its pivot from Bitcoin (BTC) mining to high-performance computing and AI infrastructure. But the enthusiasm is intensifying.

Last week, the company notched two significant analyst upgrades, amplifying momentum from its $9.7 billion November agreement with Microsoft (MSFT) to provide GPU cloud services, positioning IREN as a key player in the AI boom. As AI demand explodes, IREN’s renewable-powered data centers offer a compelling edge, causing shares to jump 20% last week. Here’s why investors may want to buy in now.

Analyst Upgrades Fuel Optimism
The catalyst for IREN’s recent rally includes a notable upgrade from HC Wainwright analyst Mike Colonnese, who double-upgraded the stock from Sell to Buy, setting a price target of $80. This implies a 38% upside from recent levels around $58, reflecting confidence in IREN’s “transformative year” ahead. The firm highlighted IREN’s exposure to AI growth, particularly through its scalable power assets and rapid deployment capabilities.

This came after Bernstein analyst Gautam Chhugani named IREN his top AI pick for 2026, citing its potential in the burgeoning AI cloud market. Bernstein emphasized IREN’s shift from crypto volatility to stable, high-margin AI services, forecasting robust revenue from Bitcoin’s rebound and tokenization trends.

These upgrades arrive just months after IREN’s November pact with Microsoft to deploy Nvidia (NVDA) Blackwell GPUs at its Childress, Tex., campus. Leveraging 3 gigawatts of North American power capacity, IREN is poised for explosive growth in AI cloud computing, where demand for energy-efficient data centers is skyrocketing.

This alignment with tech’s giants underscores IREN’s strategic repositioning. Once primarily a Bitcoin miner, the company now boasts a diversified portfolio, with AI contributing to targeted annual revenues exceeding $3 billion by fiscal 2026. Analysts see this as a hedge against crypto fluctuations, with AI deals providing predictable cash flows and higher valuations.

Weighing the Risks in the Microsoft Partnership

However, the Microsoft deal isn’t without pitfalls. While it promises substantial revenue, IREN faces significant upfront costs and execution challenges. Under the agreement, IREN must invest $5.8 billion in GPUs and equipment over five years, with Microsoft’s prepayments covering only about a third. This leaves IREN to finance the remainder, likely through debt, adding hundreds of millions in interest expenses and straining its already leveraged balance sheet.

Operational risks also loom large in the low-margin data center space. High energy consumption, rapid depreciation of hardware, and potential delays or outages could erode profits. Critics argue Microsoft is offloading risks by outsourcing, placing the burden on IREN to manage overhead and scale flawlessly amid cutthroat competition.

With annual revenues nearing $2 billion but operating margins slim at around 4%, any misstep in cost control could turn this “mega-deal” into a financial trap. Investors should keep a close eye on IREN’s phased deployments, as profitability hinges on seamless integration and market conditions.

Bottom Line
IREN is now rated a Buy or better by 10 of 12 analysts, with no Sell ratings remaining after the recent upgrade. The consensus price target hovers around $69, signaling strong upside potential.

While the Microsoft deal warrants caution – investors may want to limit their exposure until clarity on the financial impacts emerge – it shouldn’t deter buying. IREN’s AI pivot, backed by its renewable energy advantages, positions it for long-term gains in a trillion-dollar market. With shares still undervalued relative to peers, now is an opportune entry point for risk-tolerant portfolios.

— Rich Duprey

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Source: Money Morning