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IREN Ltd (NASDAQ:IREN) has inked a GPU cloud contract with Microsoft Corp (NASDAQ:MSFT) with "some attractive terms in the deal," according to Canaccord Genuity.
The IREN Analyst: Analyst Joseph Vafi maintained a Buy rating, while raising the price target from $42 to $70.
The IREN Thesis: The deal with Microsoft includes a 20% prepayment to increase capital expenditure before revenues commence, Vafi said in the note.
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The contract itself is estimated to generate a five-year levered IRR (return on investment for equity investors) of around 32%, the analyst stated.
"It should also be noted that our ~32% IRR calculation also comes after deducting ~$312 million in annual internal colocation fees," he wrote.
The GPU contract from Microsoft could pay for 50% of the capex to build the infrastructure at IREN's Horizon datacenters, which would have "a long useful life afterward," Vafi said.
The contract is likely to "truly change the way investors and the industry view IREN," the analyst further said.
IREN Price Action: Iren shares were down 1.80% at $61.26 at the time of publication on Monday, according to Benzinga Pro data.
Iren operates in the highly competitive software sector, with a market cap of $17.37 billion and a P/E ratio of 35.85, suggesting robust growth expectations amid a backdrop of increasing digital transformation globally.
The stock’s 52-week range spans from a low of $5.12 to a high of $76.87, indicating significant volatility and investor interest, particularly as it approaches the upper end of this range, which may reflect market optimism about its long-term prospects.
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