IREN High Conviction Play; Likely To Break Ascending TriangleOn the chart, IREN is heading towards its end of a massive year and a half long ascending triangle. Its has been coiling up, getting tighter and tighter and there isn’t much room left. I believe this is going to pop to the upside in the very near future. I’m talking days, to weeks to a month at max most likely. There is a solid fundamental reason for this play that goes along with technical analysis that I have written up below. Those 2 things together, along with following some bitcoin mining discords, spaces, twitter, etc I believes gives me a very good feel for this market right now.
I have loaded up on spot with an average basis of $4.57 and have $5 and $7.5 call options with Nov 15 expiration. I think this is a out of the park home run play, but I could be wrong. I am just sharing my journey, with my reasons for my trades, so I can hopefully improve my process along the way. This is definitely not financial advice. Do your own research and make your own decisions.
IREN (formerly Iris Energy)
Ticker: IREN
Price: $5.08
Total Shares Outstanding: 141,094,782
MarketCap: $716,761,492
Cash: $301,000,000
Current Assets: $409,186,000 (added 211m in cash from dilution since at 300m cash now and was 90m last report)
Current Liabilities: $32,343,000
Total Assets: $628,167,000 (Added 211m here as well)
Total Liabilities: $35,319,000
Net Assets: $592,848,000
March Revenue: $23,000,000
Price to NAV: 1.2
Short interest: 3.56%
CEO Dan Roberts: “it comes down to a thesis and an observation that the world we live in, the digital world grows exponentially, unconstrained by the real world. Whereas the infrastructure, the compute, accessing the energy, building data centers, securing GPU, building out data centers, that is all dictated by the real world.”
“The analogy that I’ve used before is, we’re modern day farmers. If you think of farming, it’s all about good land with access to hydrology, and then you’ve got the ability to grow different crops and grow them into different markets, as kind of the seasons change and the markets evolve. We view ourselves as very similar, where our core input is low cost, excess renewable energy and we’re buying the land adjacent to that, building the infrastructure to monetize that renewable energy, ie that water into computing power. Now today that is heavily weighted towards bitcoin. It’s emerging at a weighting towards AI, but fast forward 5-10 years that process of turning electricity, low cost, renewable energy into computing power that’s gonna fuel progress as society is exactly the focus for us and having optionality around that.
“IREN has got 5 sites across North America and we are pursuing both bitcoin and AI. And to be honest, the only decision to date, is whether or not to purse both, and we are. We believe both represent exponential macro tailwinds as we forecast out another 10-15 years and to be on the right side of those tailwinds is exciting for our business and ultimately owning the infrastructure, the land, data centers that are optimized specifically for this type of power dense computing, we think it is a great opportunity to really get exposure to both of these really exciting industries.”
“Our belief over the next decade, 20 years is the demand for computing power ultimately driven by energy and electricity is not going away in fact is going to be extreme. So for us, the strategy was, well the demand is going to be there. You know we believe in the future of bitcoin, the future of AI, we believe in the future of these other power dense computing applications, so what are the key issues involved? For us it was a couple things. One, traditional data centers are not optimized for these applications, they’re typically located in capital city locations beholden to local power prices, but they’re also optimized for very different applications lifetime cloud computing, you know hospital, government, corporate, mission and critical systems, really low latency, high reliability, very different objectives. Whereas for us, it’s just raw computing power using 100% renewable energy. So going to the source of that low cost excess renewables, and using that to drive computing power into this new age. So in terms of the energy strategy specifically, it’s all about targeting low-cost excess renewable energy.”
So these guys buy up cheap land, where they can access low cost renewable energy, build it out, then farm it out by mining bitcoin or running AI cloud computing services with their GPUs that other companies rent off them, or allow the companies to buy themselves, and just rent out their space capacity. They have 5 sites, 3 in Canada and 2 in Texas. They have been focused on bitcoin mining, until just recently getting into the AI space. I’m pretty sure none of their revenue in 2023 was from AI, but that should show up in 2024. It seems like they have high expectations and are expecting high growth for this side of the business. They currently have 816 GPUs and are expecting an estimated 14-17m of annualized hardware profit with a 24 month payback on the GPUs. The other thing that the AI revenue does is make the company less tied to the volatility of the bitcoin price swings in the bear markets.
This is a company, like all bitcoin mining companies, that gets hit hard by the upcoming halving on 4/20. The bitcoin they mine is immediately halved, as is their revenue from this side of the business. However, the bitcoin price increase that should follow in the months ahead will make up for this, and the company is also currently in the process of building their new facilities and firing up their miners, as they finish. They are currently operating 220 MW of power with 8 EHs in total bitcoin mining capacity across their 5 sites, however that is expected to ramp up to 10 EH by the end of Q2 and continually increase throughout the year till they finish with 20 EHs by the end of 2024 at the Childress, Texas site. They then have the ability and capacity to build out the rest of this Childress site to 30 EH by the end of 2025. Right now only the 20 EHs is fully funded, so anything in excess of their AI and Bitcoin mining revenue/cash flow, would likely have to be dilutive to get to that 30 EHs, which is fine as long as it continues to be accretive to shareholders.
After they finish this 300+ acre Childress project, they have another 1400 MW development site in West Texas. This place is massive. It’s over 500 acres and will do the same thing as they’ve been doing. It’s a late 2026 expected in service date, but this place is gonna take some time to build out. For comparison sake, watch the little header clip here. This Corsciana facility Riot has is 1 GW, the Iren site is 1.4.
Here is the progress from Childress since June 2023. You can see they now have a total of 5 rows done and room for another 5 rows right there. Not sure where, but as I mentioned before, they have room on this site to add another 10 EHs to get to 30 Ehs in 2025. They’ll experts at building these out and will start working on the new 1.4 GW development site in 2026. That probably gets them to 100 EHs.
ibb.co
I did a deep dive on the bitcoin mining sector a month or 2 ago. After understanding the thesis, I started digging into all the companies and IREN ended up being the only investment I’ve made, because I felt like they were so undervalued relative to the rest of their competitors, but they have since caught back up some now, but are still the most undervalued, imo. At the time I bought them, the market cap was at or below their NAV. My average cost basis is $4.57, but I think it’s still good in this $5-$6 range. I think this entire sector is going to pump and IREN is the horse I’m betting on.
This is sort of a leverage play on bitcoin that I think will outperform it. I’ve been following this market pretty closely and the prices are still down 47% on the pull back in December. This is likely just a 1-2 year investment, as I believe the price is going to spike into extremely overvalued territory, and I would likely try to sell there. However, I think this is a solid company and I will be following them, and this sector in the years to come. I just think if I’m able to ride this wave up decently, it’s possible I’m able to outperform bitcoin considerably. This sector in general is very tough though. The companies are constantly diluting (although it’s been accretive to holders until this point), and with the halving and more hash rate from competitors constantly coming online, it’s a constant race for more hash rate growth and it’s a race to the bottom in rewards for everyone. This is still an extremely exciting space with lots of growth however. On top of this, IREN has less institutional holders than industry leaders likely MARA, RIOT, CLSK, however, as their market cap increases, more institutions will buy them and they will also be listed on the Russel 2000 which should bring in consistent passive flows.
Currently operating at only a 1.2 Price to NAV ratio, with absolutely zero debt, I believe this company is a solid play at $5.04. I am confident this sector has consolidated over the past few months from their initial base run up last year and is ready to start making a move higher in the months to come. They do still have 170 million they can dilute of their 500M ATM, but the 20 EH is fully funded, so that 170 will go towards building out to 30 EH or other purposes that are hopefully accretive to shareholders. The rest of their shares have been bought up by others, and i believe the sellers have dried up.
There's always the possiblity i'm wrong, but everything alines here, and I have seen the growth of investors, both retail and institutional since I have found this sector. Other than the company itself who is selling shares to fund growth, nobody is selling at near these prices. The sellers have dried up. Everyone I know is expecting at least 5-10x returns from here and are so certain they are already planning their exit target prices. Maybe prices don’t get that out of hand, but shoot for the stars, and you might hit the moon at least. I have my stop losses and my exit targets for scaling out set.
I’ve bought into the whole thesis fundamentally, it has momentum, it’s good point of entry price wise, and my technical analysis thinks it’s a solid play, so pretty much everything lines up here. . I like the fact that they are both a bitcoin mining and AI company, as that should bring more investors in as they find out about them. Both of these sectors are going to demand massive electricity going forward. These are huge growth areas.
I don't think IREN upside for moving towards using their data center for AI is anywhere close to priced in.. CEO and founder of Dell, Michael Dell said that we are only in the first or 2nd year of "the big AI Revolution and predicted that the growth of AI will be 10x faster than the growth rate of the internet. He has also said that we could need 100x more data centers in 10 years. “Right now it’s just a mad scramble for any place that has power any time soon,” said Charles Fitzgerald, a former Microsoft manager and Seattle-based investor who tracks cloud company spending. Yes, we are talking in 10x and 100x numbers here and this is only 1 side of their business. Amazon, Google, Microsoft all of these guys are building are also building out this capacity, but they can't do it all themselves. We are early, but IREN appears they'll be able to fill a little niche roll with these start up AI companies. There could be some real significant long term customers that come out of this.
Another AI company says, "Artificial intelligence's demand for more computing power, more data centers, and more electricity is currently "underestimated," says global cloud compute provider CoreWeave. An underestimation that will eventually cause stress and restraints to the world's current power grid system. The prediction comes from CoreWeave co-founder Brian Venturo. He claims the data center demands that CoreWeave receives daily are "absurd," with several requesting entire campuses. According to the co-founder, supply networks that have traditionally supported highly physical businesses are not designed to handle the speed at which the market is moving. He believes that with more "megacampuses," electricity grids will be stressed, and political disputes will increase."
On the McNallie Money youtube channel 5 days ago, the IREN COO Kent Draper was on there and had some interesting things to say:
“We're really just scratching the surface even with the enormous growth that we've seen over the last 12 to 18 months. We think this is going to be a transformative thing that will revolutionize many aspects of of society and in doing so it's going to require incredible amounts of of computing power so that that is of particular interest for us for for a couple of reasons. You know, we have built up aa very large pipeline of land and availability of power within our portfolio.”
“Because everything we've done over the last four years has been refining data centers that perform extremely well for power dense computing, you know that that is our core application. we think it is very attractive on the on the data center side and then more recently um with our expansion into AI cloud services that's actually where we own and operate the GPUS and offer the raw computing power out as a service so that's the other way that um we're looking to play this trend. And that side of the business we also think is enormously exciting. we will uh we've already tripled since our initial cluster the amount of capacity that we have online uh and we we'll look to continue to grow that that piece of the business going forwards um but you know certainly we we'll do it in a in a manner where we're growing it gradually um we're doing it sensibly but I think the over the short to medium term the amount of interest that we're seeing on the customer side is is huge.”
“Yeah it's it's both a mix of of inbound and outbound (interest) I'd say in relation to the land and power there is a lot of inbound interest on that side. I think a lot of people have been caught by surprise given how quickly the generative AI space is growing and many players in the industry had their own forecasts that they generated for requirements for data center space and I think they've all been blown out of the water by the by the growth in this industry. So you know certainly on that side of things we see a lot of a lot of reverse inquiries and then in relation to cloud services it's a mix of reverse inquiries and and outbound but as as I said before we are still seeing very good interest on the customer side and in particular you know there are a number of customers that are looking for multi Thousand GPU deployment so you know that is significantly interesting because each 1000 gpus is, is a if you're looking at h100s to use an example from Nvidia ,that's a $40 million capital investment ,so you know customers of that size it can really facilitate uh a lot of capital deployment over relatively short periods of time.”
If you’d rather diversify and invest in many companies in the sector to reduce risk in a single company by buying an ETF instead, WGMI is the bitcoin mining ETF and it provided the highest return of any ETF in history for 2023. I think it’s more than fine. IREN is 10% of the ETFs holdings. It also appears to be in this same ascending triangle patters, that is going to pop, so results should be fine, but I believe IREN is the fastest horse in this race. I believe they could be a 10xer and a 10billion plus company in the future.
-bettingbillions
