Key Points
SpaceX (NASDAQ: SPCX) and Tesla CEO Elon Musk recently posted on X that over the past few weeks, debt markets have “almost entirely shut off access to money for any company that doesn’t have substantial revenue independent of AI data centers”. Musk believes that tightening could cause more than 200 neocloud companies — which mainly provide AI infrastructure services — to face a “guppy-level death and consolidation” in the near future.
That statement caused many neocloud stocks to plummet. One of the hardest-hit stocks was IREN (NASDAQ: IREN), which trades 64% below its all-time high from last November. Let’s see why a tightening debt market could spell trouble for this former market darling.
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What could happen to IREN?
IREN was once an Australian Bitcoin (CRYPTO: BTC) miner called Iris Energy. In 2024, it rebranded as IREN and became a neocloud AI infrastructure company. As IREN, the company allocated all of its capital, logistics, and power infrastructure toward expanding its AI and high-performance computing (HPC) data centers rather than its Bitcoin mining operations.
Today, IREN has a fleet of six operational data centers across four countries. It plans to bring seven additional data centers online in the near future. It plans to increase its capacity from 810 MW today to 4.5 GW over the long term. Its 2026 capacity is already “largely” sold out, and it’s in “late-stage discussions” with new customers for a “significant portion” of its 2027 capacity.
IREN has already secured multi-billion-dollar cloud services contracts with Microsoft, Nvidia, and other AI giants. It requires many of those customers to prepay roughly half of the GPU capex, reducing its upfront capital requirements.
From fiscal 2026 (which ended in June) to fiscal 2029, analysts expect its revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to grow at CAGRs of 177% and 243%, respectively, as it expands its capacity and converts its backlog into revenue.
With an enterprise value of $34.6 billion, IREN trades at just 12 times this year’s sales and 19 times its adjusted EBITDA. However, its net losses — which include interest payments, hardware depreciation, and stock-based compensation excluded from its adjusted EBITDA — are expected to widen from $703 million in fiscal 2026 to $1.05 billion in fiscal 2029.
That’s bad news for a company that ended its latest quarter with $11.6 billion in total liabilities and a high debt-to-equity ratio of 2.8. It’s already increased its share count by 78% over the past two years — and that dilution will worsen as it raises cash with more stock offerings. So while I wouldn’t claim that IREN will face a “guppy-level” death, I think it’s a risky stock to own if interest rates keep rising and the debt markets get even tighter.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy.
