IREN to increase AI Cloud Services to 10% of earnings

Rhea-AI Summary

Iris Energy (NASDAQ: IREN) has announced the purchase of 1,080 NVIDIA H200 GPUs for $43.9 million to expand its AI Cloud Services business. This acquisition is expected to increase the AI Cloud Services proportion of IREN's earnings to approximately 10% by year-end, with further growth anticipated through 2025.

Key points:

• IREN's GPU fleet will increase to 1,896 NVIDIA H100 & H200 GPUs
• Estimated annualized hardware profit of $32 million
• Bitcoin mining capacity to expand to 30 EH/s by Q4 2024
• AI Cloud Services expected to contribute ~10% to run-rate earnings by end of 2024
• Illustrative economics show $33m revenue and $32m hardware profit for AI Cloud Services, compared to $460m revenue and $304m hardware profit for Bitcoin Mining

Positive

• Purchase of 1,080 NVIDIA H200 GPUs for $43.9 million to expand AI Cloud Services
• AI Cloud Services expected to contribute ~10% to run-rate earnings by end of 2024
• Estimated annualized hardware profit of $32 million from GPU fleet
• Bitcoin mining capacity expanding to 30 EH/s by Q4 2024
• Strong demand reported for new-generation GPUs

Negative

• Significant capital expenditure of $43.9 million for GPU purchase
• AI Cloud Services still a small portion (10%) of overall earnings compared to Bitcoin Mining (90%)

Insights

Financial Analyst

IREN's strategic move to expand its AI Cloud Services with a $43.9 million investment in NVIDIA H200 GPUs is a significant pivot that could reshape its revenue structure. The projected increase to 10% of earnings from this segment by year-end, up from nil seven months ago, signals rapid growth in a high-demand market. This diversification reduces IREN's reliance on volatile cryptocurrency mining, potentially stabilizing future cash flows.

However, investors should note the capital-intensive nature of this expansion and monitor the company's ability to maintain profitability amidst high upfront costs. The estimated $32 million annualized hardware profit from GPUs looks promising, but actual returns will depend on market demand and IREN's ability to efficiently monetize this infrastructure. The company's participation in NVIDIA's Cloud Partner Program could provide a competitive edge, but the AI cloud services market is becoming increasingly crowded.

Tech Expert

IREN's acquisition of 1,080 NVIDIA H200 GPUs represents a significant technological leap. The H200, being NVIDIA's latest offering, boasts superior performance for AI workloads compared to its predecessors. This move positions IREN at the forefront of AI infrastructure providers, potentially attracting high-value clients in machine learning and deep learning fields.

The expansion to 1,896 total high-end GPUs creates a formidable compute cluster, enabling IREN to tackle complex AI tasks and potentially offer specialized services. However, the rapid pace of GPU advancements means IREN must continually invest to stay competitive. The company's strategy of balancing AI services with Bitcoin mining, leveraging its 510MW data center portfolio, showcases an intelligent approach to maximizing infrastructure utilization and adapting to market demands.

Market Research Analyst

IREN's move into AI Cloud Services aligns with the booming demand for AI computing resources. With major tech companies and startups alike scrambling for GPU access, IREN is tapping into a market with significant growth potential. The projected 10% contribution to earnings by year-end, with expectations of further growth in 2025, indicates a strong market position.

However, the AI cloud services market is becoming increasingly competitive, with tech giants like Amazon, Google and Microsoft dominating. IREN's success will depend on its ability to differentiate its offerings and maintain high utilization rates. The company's dual focus on AI and Bitcoin mining provides a hedge against market volatility in either sector. Investors should monitor IREN's client acquisition in the AI space and any shifts in the competitive landscape that could impact pricing and profitability in this rapidly evolving market.

Purchase of additional 1,080 NVIDIA H200 GPUs

SYDNEY, Sept. 16, 2024 (GLOBE NEWSWIRE) -- Iris Energy Limited (NASDAQ: IREN) (together with its subsidiaries, “IREN”) today announced the purchase of 1,080 latest-generation NVIDIA H200 GPUs to support its growing AI Cloud Services business.

“We’re seeing strong levels of demand for new-generation GPUs. Ongoing discussions with NVIDIA and participation in their Cloud Partner Program gives us added confidence in deploying this new capacity,” said Daniel Roberts, Co-Founder and Co-CEO of IREN.

“This purchase is estimated to increase the AI Cloud Services proportion of IREN earnings to ~10% by year-end, a proportion we expect to continue growing through 2025.” ¹

Expansion of AI Cloud Services

IREN is purchasing 1,080 of the latest-generation NVIDIA H200 GPUs for $43.9m², with delivery and commissioning expected during 4Q 2024.

This purchase increases IREN’s overall GPU fleet to:

• 1,896 NVIDIA H100 & H200 GPUs
• $32m of estimated annualized hardware profit³

Expansion of Bitcoin Mining

Current IREN installed capacity of 18.8 EH/s (16.3 J/TH efficiency), with expansion on track to 20 EH/s (this month) and 30 EH/s (4Q 2024).

Based on 30 EH/s (15 J/TH efficiency):

• $20k electricity cost per Bitcoin mined³
• $31k all-in cash cost per Bitcoin mined⁴

Business Mix

AI Cloud Services estimated to contribute ~10% to run-rate earnings (7 months ago: nil)¹ from IREN’s 510MW data center portfolio by end of 2024, a proportion expected to continue to grow through 2025.

Illustrative economics3 Annualized exit run-rate (end of 2024)	AI Cloud Services	Bitcoin Mining
Revenue	$33m	$460m
Electricity Costs	($1m)	($156m)
Hardware Profit	$32m	$304m
% Proportion	~10%	~90%

Assumptions and Notes

1. Refers to Illustrative Annualized Hardware Profit, as defined in footnote 3 below. See Forward-Looking Statements disclaimer below, including Non-IFRS Financial Measures.
   
2. Includes servers and ancillary equipment such as InfiniBand, racks, cabling and labor.
3. Illustrative Annualized Hardware Profit = illustrative revenue less assumed electricity costs (excludes all other site, overhead and Renewable Energy Certificate (“REC”) costs). Calculations assume hardware operates at 100% uptime. AI Cloud Services calculations assume 1.25kW power draw per GPU, $0.045/kWh electricity costs and lower end of a $2.00 - $2.50 per GPU hour revenue assumption range. Bitcoin mining calculations assume $60,000 (Bitcoin price), 662 EH/s (global hashrate), 3.125 BTC (block reward), 0.1 BTC (transaction fees), 0.15% (pool fees), 468MW (power consumption), $0.038/kWh electricity costs (4.5c/kWh BC, 3.5c/kWh Childress – note August 2024 electricity price at Childress of 3.1c/kWh following transition to spot pricing).
4. Estimated all-in cash costs per Bitcoin mined at 30 EH/s include electricity costs (as noted in footnote 3 above) and indicative all other opex (including all corporate overheads) of ~$80m per annum.

Forward-Looking Statements

This investor update includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally relate to future events or IREN’s future financial or operating performance. For example, forward-looking statements include but are not limited to IREN’s business strategy, expected operational and financial results, and expected increase in power capacity and hashrate. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “may,” “can,” “should,” “could,” “might,” “plan,” “possible,” “project,” “strive,” “budget,” “forecast,” “expect,” “intend,” “target”, “will,” “estimate,” “predict,” “potential,” “continue,” “scheduled” or the negatives of these terms or variations of them or similar terminology, but the absence of these words does not mean that statement is not forward-looking. Such forward-looking statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. In addition, any statements or information that refer to expectations, beliefs, plans, projections, objectives, performance or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking.

These forward-looking statements are based on management’s current expectations and beliefs. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause IREN’s actual results, performance or achievements to be materially different from any future results performance or achievements expressed or implied by the forward looking statements, including, but not limited to: Bitcoin price and foreign currency exchange rate fluctuations; IREN’s ability to obtain additional capital on commercially reasonable terms and in a timely manner to meet its capital needs and facilitate its expansion plans; the terms of any future financing or any refinancing, restructuring or modification to the terms of any future financing, which could require IREN to comply with onerous covenants or restrictions, and its ability to service its debt obligations, any of which could restrict its business operations and adversely impact its financial condition, cash flows and results of operations; IREN’s ability to successfully execute on its growth strategies and operating plans, including its ability to continue to develop its existing data center sites and to diversify and expand into the market for high performance computing (“HPC”) solutions it may offer (including the market for AI Cloud Services); IREN’s limited experience with respect to new markets it has entered or may seek to enter, including the market for HPC solutions (including AI Cloud Services); expectations with respect to the ongoing profitability, viability, operability, security, popularity and public perceptions of the Bitcoin network; expectations with respect to the profitability, viability, operability, security, popularity and public perceptions of any current and future HPC solutions (including AI Cloud Services) that IREN offers; IREN’s ability to secure and retain customers on commercially reasonable terms or at all, particularly as it relates to its strategy to expand into markets for HPC solutions (including AI Cloud Services); IREN’s ability to manage counterparty risk (including credit risk) associated with any current or future customers, including customers of its HPC solutions (including AI Cloud Services) and other counterparties; the risk that any current or future customers, including customers of its HPC solutions (including AI Cloud Services), or other counterparties may terminate, default on or underperform their contractual obligations; Bitcoin global hashrate fluctuations; IREN’s ability to secure renewable energy, renewable energy certificates, power capacity, facilities and sites on commercially reasonable terms or at all; delays associated with, or failure to obtain or complete, permitting approvals, grid connections and other development activities customary for greenfield or brownfield infrastructure projects; IREN’s reliance on power and utilities providers, third party mining pools, exchanges, banks, insurance providers and its ability to maintain relationships with such parties; expectations regarding availability and pricing of electricity; IREN’s participation and ability to successfully participate in demand response products and services and other load management programs run, operated or offered by electricity network operators, regulators or electricity market operators; the availability, reliability and/or cost of electricity supply, hardware and electrical and data center infrastructure, including with respect to any electricity outages and any laws and regulations that may restrict the electricity supply available to IREN; any variance between the actual operating performance of IREN’s miner hardware achieved compared to the nameplate performance including hashrate; IREN’s ability to curtail its electricity consumption and/or monetize electricity depending on market conditions, including changes in Bitcoin mining economics and prevailing electricity prices; actions undertaken by electricity network and market operators, regulators, governments or communities in the regions in which IREN operates; the availability, suitability, reliability and cost of internet connections at IREN’s facilities; IREN’s ability to secure additional hardware, including hardware for Bitcoin mining and any current or future HPC solutions (including AI Cloud Services) it offers, on commercially reasonable terms or at all, and any delays or reductions in the supply of such hardware or increases in the cost of procuring such hardware; expectations with respect to the useful life and obsolescence of hardware (including hardware for Bitcoin mining as well as hardware for other applications, including any current or future HPC solutions (including AI Cloud Services) IREN offers); delays, increases in costs or reductions in the supply of equipment used in IREN’s operations; IREN’s ability to operate in an evolving regulatory environment; IREN’s ability to successfully operate and maintain its property and infrastructure; reliability and performance of IREN’s infrastructure compared to expectations; malicious attacks on IREN’s property, infrastructure or IT systems; IREN’s ability to maintain in good standing the operating and other permits and licenses required for its operations and business; IREN’s ability to obtain, maintain, protect and enforce its intellectual property rights and confidential information; any intellectual property infringement and product liability claims; whether the secular trends IREN expects to drive growth in its business materialize to the degree it expects them to, or at all; any pending or future acquisitions, dispositions, joint ventures or other strategic transactions; the occurrence of any environmental, health and safety incidents at IREN’s sites, and any material costs relating to environmental, health and safety requirements or liabilities; damage to IREN’s property and infrastructure and the risk that any insurance IREN maintains may not fully cover all potential exposures; ongoing proceedings relating to the default by two of IREN’s wholly-owned special purpose vehicles under limited recourse equipment financing facilities; ongoing securities litigation relating in part to the default; and any future litigation, claims and/or regulatory investigations, and the costs, expenses, use of resources, diversion of management time and efforts, liability and damages that may result therefrom; IREN’s failure to comply with any laws including the anti-corruption laws of the United States and various international jurisdictions; any failure of IREN’s compliance and risk management methods; any laws, regulations and ethical standards that may relate to IREN’s business, including those that relate to Bitcoin and the Bitcoin mining industry and those that relate to any other services it offers, including laws and regulations related to data privacy, cybersecurity, the storage, use or processing of information and consumer laws; IREN’s ability to attract, motivate and retain senior management and qualified employees; increased risks to IREN’s global operations including, but not limited to, political instability, acts of terrorism, theft and vandalism, cyberattacks and other cybersecurity incidents and unexpected regulatory and economic sanctions changes, among other things; climate change, severe weather conditions and natural and man-made disasters that may materially adversely affect IREN’s business, financial condition and results of operations; public health crises, including an outbreak of an infectious disease (such as COVID-19) and any governmental or industry measures taken in response; IREN’s ability to remain competitive in dynamic and rapidly evolving industries; damage to IREN’s brand and reputation; expectations relating to Environmental, Social or Governance issues or reporting; the costs of being a public company; and other important factors discussed under the caption “Risk Factors” in IREN’s annual report on Form 20-F filed with the SEC on August 28, 2024 as such factors may be updated from time to time in its other filings with the SEC, accessible on the SEC’s website at www.sec.gov and the Investor Relations section of IREN’s website at https://investors.iren.com.

These and other important factors could cause actual results to differ materially from those indicated by the forward-looking statements made in this investor update. Any forward-looking statement that IREN makes in this investor update speaks only as of the date of such statement. Except as required by law, IREN disclaims any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements, whether as a result of new information, future events or otherwise.

Non-IFRS Financial Measures​

This investor update includes non-IFRS financial measures, including electricity costs (presented on a net basis) and hardware profit margin. We provide these measures in addition to, and not as a substitute for, measures of financial performance prepared in accordance with IFRS. There are a number of limitations related to the use of non-IFRS financial measures. For example, other companies, including companies in our industry, may calculate these measures differently. IREN believes that these measures are important and supplement discussions and analysis of its results of operations and enhances an understanding of its operating performance.​

Electricity costs are calculated as our IFRS Electricity charges net of Realized gain/(loss) on financial asset, ERS revenue (included in Other income) and ERS fees (included in Other operating expenses), and excludes the cost of RECs.

Illustrative Annualized Hardware Profit is calculated as illustrative revenue less assumed electricity costs (excludes all other site, overhead and REC costs).

About IREN

IREN is a leading data center business powering the future of Bitcoin, AI and beyond utilizing 100% renewable energy.

• Bitcoin Mining: providing security to the Bitcoin network, expanding to 30 EH/s in 2024. Operations since 2019.
• AI Cloud Services: providing cloud compute to AI customers, 1,896 NVIDIA H100 & H200 GPUs. Operations since 2024.
• Next-Generation Data Centers: 330MW of operating data centers, expanding to 510MW in 2024. Specifically designed and purpose-built infrastructure for high-performance and power-dense computing applications.
• Technology: technology stack for performance optimization of AI Cloud Services, Bitcoin Mining and energy trading operations.
• Development Portfolio: 2,310MW of grid-connected power secured across North America, >1,000 acre property portfolio and additional development pipeline.
• 100% Renewable Energy (from clean or renewable energy sources or through the purchase of RECs): targets sites with low-cost & underutilized renewable energy, and supports electrical grids and local communities.

Contacts

Media Jon Snowball Domestique +61 477 946 068 Danielle Ghigliera Aircover Communications +1 510 333 2707	Investors Lincoln Tan IREN +61 407 423 395 lincoln.tan@iren.com

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FAQ

How many NVIDIA H200 GPUs is Iris Energy (IREN) purchasing?

Iris Energy (IREN) is purchasing 1,080 NVIDIA H200 GPUs.

What is the expected impact of the GPU purchase on IREN's AI Cloud Services earnings?

The GPU purchase is expected to increase AI Cloud Services' contribution to approximately 10% of IREN's earnings by year-end 2024.

What is IREN's projected Bitcoin mining capacity by Q4 2024?

IREN projects its Bitcoin mining capacity to reach 30 EH/s by Q4 2024.

How much is IREN spending on the NVIDIA H200 GPU purchase?

IREN is spending $43.9 million on the purchase of 1,080 NVIDIA H200 GPUs.

What is the estimated annualized hardware profit for IREN's GPU fleet?

The estimated annualized hardware profit for IREN's GPU fleet is $32 million.