They upped their ARR guidance for the whole calendar year from $3.1B to $3.7B, so a $600B increase in guide over the next two quarters.
Yes, they have expanded their TAM from just large hyperscalers to now also include enterprise customers, including 1500 enterprise customers coming along with the Mirantis acquisition.
The “bare metal” advantage is simply that the largest customers need/want only bare metal, so why spend R&D and Opex on software layers if your customers don’t need/want that? Which is worse - claiming to be a software-advantaged NeoCloud on which you spend R&D and maintenance, but where the vast lion’s share of revenue actually comes from bare metal customers, or a bare-metal first NeoCloud that also acquires a company providing software R&D, Opex, and Customer relation support - and with 1500 existing enterprise customers all wrapped up?
But, you’re right that this is a shift for Iren. Here’s a quote from Q2:
Today we’re still seeing the bulk of our demand coming from hyperscalers, the largest enterprises, extremely, advanced technology firms within the AI space, all of which, are still looking for bare metal access. They want full ability to be able to take control of the GPUs, layer on their own software stack, set up the compute in exactly the way that they want to operate it. … In short, we continue to monitor that part of the market and what makes sense for us, but today, it is not a major driver for us because our demand is coming from bare metal customers.
And now this, from the most recent (Q3) Call:
There are benefits in having hyperscale clients in terms of financability, contractual certainty, but there are also consequences in terms of price because you’re not servicing the end customer in many of those instances. The ability to service the end customer has been something we’ve focused on since day 1. All of our early deployments have been very focused on the hyperscale customers and getting as close to AI natives and enterprise as we can. The Mirantis acquisition certainly helps that. I’m not gonna sit here and say we’re going 100% hyperscale, we’re going 100% AI native end market. The reality is that blend will just emerge organically over time.
I would suspect that the Nvidia deal is for bare metal, being characterized as “supporting NVIDIA’s own internal workloads.” Nvidia surely doesn’t need help with infrastructure. What would Nvidia need besides space and power/cooling? This would seem to be where Iren’s contracted power means they can deliver faster than others, and perhaps what Nvidia wanted most.
It is, to me, a strong endorsement of IREN’s approach that Nvidia is using IREN to deploy them for their own internal use. There are side-benefits to working directly with Nvidia, too, as they outlined in the call:
This, again, is part of the close working relationship we’ve got with NVIDIA. You know, we’ve spent a lot of the last fortnight in their San Jose office working through how we service all types of customers, all the way from the trillion-dollar hyperscalers through to the emerging AI scale-ups, where a lot of this innovation and development is taking place. It’s funny, speaking to someone the other day, you don’t need a sales team in this market, particularly when you’ve got NVIDIA. They see the whole ecosystem, the introductions, the referrals, putting us in touch with anyone that needs capacity. It’s just happening in so organically, so quickly live time, that it’ll just play out a good way.
With the Nvidia deal just announced, and the handoff for the Microsoft deal happening next quarter, I don’t see where they have having “trouble delivering on deals.” Here’s what Roberts says about timing:
There’s nothing stopping us contracting that capacity today. It just gets easier the closer you get. The focus is on time to compute. The demand we know is there, and all it does is make the conversations and the negotiations that we are having live time for a lot of that capacity much easier when you’ve got a defined construction and delivery plan rather than trying to make things up on the fly in parallel with a full form agreement.
There’s deal making and then there’s delivering on the deals. I haven’t done the exercise yet, but if you wanted to compare, compare not just what is signed, but what parts are actually delivered. Iren said “all of our operational capacity is fully contracted.” He added late in the call:
Our conviction is around the demand supply, and you cannot tap into that unless you bring the capacity online. This is the A customer contract doesn’t deliver revenue. Having compute online delivers revenue, and that has been the focus.
First, the CFO addressed this in his prepared remarks:
For GPU CapEx, we are leveraging secure debt and customer prepayments. As we have noted previously, approximately 95% of Microsoft GPU-related CapEx is expected to be funded through prepayments and GPU financing. We have work streams underway for additional GPU financing to support upcoming deployments. On the data center side, we expect our financing approach to evolve as projects move from development to construction and contracting, and ultimately to stabilized operations.
In response to the question, the CFO said:
In terms of the CapEx for GPU, obviously we’ve got a range of financing sources available to us. That obviously includes initiatives at the corporate level, but we can also look to finance GPU acquisitions in various ways in the debt capital markets through debt capital as well.
I suspect the market didn’t like hearing about tapping debt capital markets.
CEO Roberts went into more detail on the timing and not needing all the money up front:
In terms of the 5 gigawatts more broadly, maybe just to address that, and the plan. That’s obviously a lot of capital today, but the reality is you don’t need all that capital day 1. There’s an S-curve of construction that takes time. It takes years to deliver this. This is the whole point around time to compute. It’s not just a case of getting power and land. It’s assembling multi-thousand construction teams and actually delivering it. The funding for that just is progressive over time. As we’ve seen, as we continue to deliver, we continue to drive revenue, we can reinvest that revenue in CapEx, and it continues to unlock more and more financing sources over time.
Part of the partnership with NVIDIA, we’ve announced, they’ve got the ability to invest in IREN as we commission GPUs. Equally, there’s other support mechanisms being discussed to the extent that, you know, we need them. The reality is capital markets are open. They’ve been very supportive of our plan, and we anticipate that continuing. The moment that that changes, there’s a whole world of capital out there in terms of other options, whether you’re creative around private markets or otherwise. When you look at the GPU financing, which is the lion’s share of that CapEx, the Microsoft contract is a great template. We financed 95% of that CapEx at an average interest rate of about 3% through prepayments and GPU financing.
The capital is out there as long as you sign good contracts, and you show that you can execute and operate this capacity.
Energy is the critical path. Buying up electrical capacity solidifies their ability to actually turn on their build-outs. Sweetwater 1 was energized on schedule, and Horizon 1 is on schedule to be energized this quarter, with Horizon 2, 3, and 4 to be energized by end of this year.
It is true that getting GPUs/racks/servers out of Nvidia (or server providers) is also a gating factor, but I believe in many places getting power is the longer lead time. And now, the Nvidia partnership should help with delivery, and, as they said, help with identifying other companies in the supply chain to deal with. Having Nvidia’s blessing puts them in a stronger position.
Iren has $2.6B in cash, not just “millions.”
As to which is the better investment, that depends on what you think the future brings. Overall, I’m happier to have Iren add software infrastructure to their customer offerings through a proven acquisition than I am having Nebius try to find customers for their existing infrastructure offerings when, in fact, the vast majority of their new business isn’t purchasing those infrastructure offerings. But, certainly both companies can, and probably will, be successful.
