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$IREN: The cloud market's dark horse

I bet most $IREN bulls are starting to get increasingly exhausted by the price action. I certainly am.

However, as long-term investors, we should see day-to-day price action as nothing more than noise.

$IREN is particularly "noisy," which makes it an especially difficult hold. Yet in times like these, it's important to step back and refocus on the company's fundamentals rather than let price action sway one's emotions.

And the way I see it, $IREN's competitive standing is rapidly improving.

I recently came across an interesting research report by Goldman Sachs that highlighted the discrepancy between planned data center capacity and realized capacity.

Out of the ~18 GW planned to be commissioned over the past 6 quarters, only about ~11 GW actually got built.

Not only is the gap between planned and realized capacity rapidly widening, but the rate at which new capacity is coming online has actually declined over the past couple of quarters.

Much of this discrepancy comes down to power continuing to be a major bottleneck.

As grids get more and more constrained with lead times reaching 5+ years, many developers are moving toward behind-the-meter (BTM) generation (on site power generation), circumventing the need for grid connectivity.

Yet that comes with its own set of problems and bottlenecks. The end result is an increasing amount of delays and outright project cancellations.

This industry backdrop plays directly into the hands of $IREN, which now has 5.8 GW of secured grid-connected power across global jurisdictions.

The only reason the industry is switching toward BTM is that it's the only option if you don't want to wait in multi-year queues to secure grid connections. But don't get it twisted, grid-connected power remains the preferred option.

$IREN is in a unique position to capitalize on this structural bottleneck and become one of the few cloud providers that can actually bring on 5+ GW of compute capacity over the coming years.

I'd even go as far as saying that this structural advantage is the primary reason the $NVDA partnership came to be.

While $NVDA undoubtedly remains king of the hill, even they face a real dilemma that could cause cracks in their growth trajectory.

On the supply side, they have to come to terms with the fact that the gap between planned and realized data center capacity is widening, while the trend of new capacity coming online is actually decelerating.

This is the issue I just flagged, and it could act as a potential growth bottleneck for $NVDA, since fewer builds means fewer GPU sales.

Layered on top of this is the demand side. It's perfectly clear that demand for $NVDA's AI hardware remains insatiable. However, when looking closer, it's also apparent that competition is increasing.

Pretty much every hyperscaler is working on their custom chips (TPU, Trainium, Maia, MTIA), and not exclusively for internal use cases anymore, but increasingly to service the compute needs of large AI labs. Anthropic alone has signed deals worth billions for Google TPU and AWS Trainium capacity.

Then you obviously have the likes of AMD and Cerebras directly competing against the AI giant, trying to claim market share.

Taken in aggregate, these two issues could gradually lead to a growth problem for $NVDA if not addressed.

This is exactly where $IREN comes in.

They've got the largest secured power portfolio of any neo-cloud at 5.8 GW and growing fast, they develop 100% of their data centers themselves, and they're not building competing silicon.

That makes them the most reliable demand outlet $NVDA can partner with at scale.

The Sweetwater partnership, positioning the 2 GW campus as a "flagship DSX deployment," isn't $NVDA doing $IREN a favor. It's $NVDA solving its two biggest problems at once.

I'm sure you know the popular saying that "history never repeats, but often rhymes." I think today's neo-cloud market is somewhat similar to the dot com era search engine war.

Back then, the front-runners leading the race were AltaVista, Excite, and Yahoo, while Google was a latecomer that ultimately came out on top.

Today, the vast majority of investors in this space are declaring either $CRWV or $NBIS the obvious winners in the race to become the next hyperscaler.

However, I believe the real dark horse that the mainstream doesn't give much credit to is $IREN.

I believe they have all the ingredients to leapfrog every competitor in a short amount of time, in large part due to their structural advantages and pursuing the right long-term strategy from the get go.

The asset-light model, which both $CRWV and $NBIS have been leaning into, doesn't work well in capital-intensive industries, at least not over the long run.

It's somewhat of an oxymoron, since it seems intuitive that one way to circumvent some of the CapEx burden is to outsource from colocation providers.

Yet that approach leaves you with less control, less flexibility, and ultimately higher costs in aggregate in the form of operating expenses (the landlord also has to earn $).

I studied the Bitcoin mining industry for years, and the asset-light model was once a popular strategy around the 2021 bull market. While it proved to be a strong growth lever, it ultimately ended up being a disaster for anyone who adopted it.

Companies like $MARA are the perfect example.

$MARA heavily adopted the asset-light model and grew to become the largest $BTC miner, yet ended up as one of the most unprofitable public miners of all, leading to significant value destruction for shareholders over time.

Once it became obvious that asset-light wasn't a sustainable strategy, $MARA tried to pivot away from it by increasing self-deployments. But developing infrastructure in-house is a much harder discipline to master, and you don't simply switch into it overnight.

$IREN ultimately won the mining race last cycle by doing the exact opposite of $MARA from the start.

They developed all of their data center infrastructure in-house, backed by a seemingly unlimited pipeline of secured power, which ended up making them the fastest growing and most profitable miner of all time.

While the cloud sector has significant differences from the mining industry, the primary drawbacks of the asset-light model carry over.

Over time, it will become obvious to Wall Street and the broader market that this strategy sounds great in theory, but in practice leads to a stack of operational issues and severe margin compression.

Out of the two current front-runners, $CRWV and $NBIS, I think Nebius will do better. They've at least started moving toward a more diversified mix of self-owned capacity rather than purely relying on hosted colocation, which is the right direction even if they're still early in that pivot.

That said, as the $MARA example showed, developing in-house gigawatt projects at scale is not something you learn overnight.

It's clear to me that a player like $IREN, which has been building this discipline from day one, has the most realistic pathway toward sustained, profitable growth in this space.

In my view, $IREN is the dark horse that will end up winning the race. Thus overthinking today’s price action wouldn't do me any favors.

Cheers guys, have a great weekend! ✌️