IREN's Q1 2026: Contradictions Emerge on Cloud vs. Colocation Priorities, GPU Financing and Costs, and Microsoft Deal's Strategic Value

Date of Call: November 6, 2025

Financials Results

• Revenue: $240.0M, up 28% sequentially and 355% year-over-year

Guidance:

• Scale GPU fleet from 23,000 to 140,000 by end-2026, targeting ~140k GPUs supporting an approximate $3.4B annualized run-rate.
• Microsoft 5-year AI cloud contract (~$9.7B) expected to generate ~$1.94B ARR and includes a 20% upfront prepayment covering ~1/3 of GPU CapEx.
• Additional 40,000 GPUs across Mackenzie/Canal Flats expected to add ~ $1B ARR; 76k GPUs for Microsoft procured within a $5.8B equipment package.
• Targeting ~ $2.5B of secured GPU financing to optimize capital structure; remaining CapEx funded by cash, prepayments and other financing; Sweetwater 1 energization scheduled April 2026.

Business Commentary:

• Revenue Growth and Strategic Partnerships:
• IREN Limited reported revenue of $240 million for Q1 FY '26, marking a fifth consecutive quarterly increase, up 28% quarter-over-quarter and 355% year-over-year.

• The growth was driven by the strategic $9.7 billion AI cloud contract with Microsoft, as well as strong operational execution and the benefits of a vertically integrated platform.

• AI Cloud Expansion and GPU Fleet Growth:

• IREN's GPU fleet is planned to scale from 23,000 GPUs today to 140,000 GPUs by the end of 2026.
• This expansion is supported by ongoing demand from various sectors and the company's ability to leverage a significant portion of its secured power capacity.

• Microsoft Contract and Financial Impact:
• The $9.7 billion AI cloud contract with Microsoft is expected to generate approximately $1.94 billion in annual recurring revenue.
• The contract includes a 20% upfront prepayment, supporting capital expenditures and positioning IREN as a strategic partner in Microsoft's AI roadmap.

• Data Center and Power Capacity:
• IREN's Childress campus secured 200 megawatts for Microsoft, with substantial expansion potential for future horizons.
• The company's Sweetwater hub has a capacity of 2 gigawatts, aimed at servicing AI compute demand and providing scalability across the portfolio.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management: "Fiscal year 2026 is off to a really good start." CFO: "Revenue reaching $240 million...355% year-over-year"; Dan: "we announced a $9.7 billion AI cloud contract with Microsoft"; "scale from 23,000 GPUs today up to 140,000 GPUs by the end of 2026"; Anthony: contract implies ~85% project EBITDA margin and strong levered IRRs.

Q&A:

• Question from Nick Giles (B. Riley Securities, Inc., Research Division): Can you expand on the commercial/strategic value of the Microsoft deal and the overall return profile/hurdle rates for future deals?
  Response: The Microsoft deal validates our platform, delivers strong cloud returns (unlevered low double-digit IRR; levered ~25–30% targeting $2.5B leverage; upside to ~35%+ levered with RV assumptions) and materially de-risks GPU funding via a 20% prepayment.

• Question from Nick Giles (B. Riley Securities, Inc., Research Division): How many GPUs will be deployed for Microsoft and how have you future-proofed the Horizon platform for future chip generations?
  Response: Each Horizon phase accommodates ~19,000 GB300s (4 phases), and Horizon racks are designed up to ~200 kW to future-proof density and support multiple GPU generations.

• Question from Paul Golding (Macquarie Research): How should we think about current GPU-hour pricing dynamics and demand; any inbound interest at Sweetwater ahead of energization?
  Response: Demand is strong and pricing appears to be firming (management declined to give explicit $/GPU-hour), and Sweetwater is attracting significant interest with initial energization in April 2026.

• Question from Brett Knoblauch (Cantor Fitzgerald & Co., Research Division): On the $5.8B Dell order, how much is GPUs vs ancillary equipment, and will ancillary gear need retrofits for future GPU generations; plus comments on CapEx efficiency for the 40k Canada expansion?
  Response: GPUs constitute the vast majority of the $5.8B; there is material back-end networking (InfiniBand) whose reusability is uncertain; converting existing ASIC sites to GPU is quick and low CapEx, with potential redundancy add-ons ~ $2M per MW if required.

• Question from Darren Aftahi (ROTH Capital Partners, LLC, Research Division): Was colocation ever on the table with Microsoft, and is there interest for more than 200 MW on the Childress campus?
  Response: Discussions evolved over time but management pursued the cloud structure they were comfortable with; there is appetite from parties for cloud/other structures above the signed 200 MW, though specifics are confidential.

• Question from John Todaro (Needham & Company, LLC, Research Division): Any penalties/guardrails around delivery timelines, and does the $14–16M per MW CapEx include extra networking/cabling or tariffs?
  Response: Management is comfortable with contractual tolerances and track record (claims no missed commissioning); elevated CapEx reflects Horizon-level infrastructure to support 100 MW superclusters and added networking that may not be required for all customers.

• Question from Stephen Glagola (JonesTrading Institutional Services, LLC, Research Division): Update on contracting of the remaining ~12,000 of the initial 23,000 BC GPUs and demand for bare metal outside AI-native firms?
  Response: Approximately 12,000+ of 23,000 contracted (recently added ~1,000); remaining units tied to later delivery windows; strong demand from AI natives and enterprise inference customers with multiple late-stage discussions ongoing.

• Question from Joseph Vafi (Canaccord Genuity Corp., Research Division): How do you view risk of cloud vs colo and any color on how Microsoft agreed to prefund GPUs via prepayment?
  Response: Management argues cloud with a hyperscaler credit offers a superior risk-adjusted return vs typical colo (better equity recovery and upside optionality); the 20% prepayment meaningfully funds ~1/3 of GPU CapEx and materially improves IRRs.

• Question from Michael Donovan (Compass Point Research & Trading, LLC, Research Division): Can you discuss your cloud software stack/stickiness and the Sweetwater fiber loop between sites?
  Response: Customers currently prefer bare metal and orchestration themselves; IREN can layer software if needed but hasn't seen material demand; the Sweetwater fiber link creates optionality to offer large-scale, campus-level deployments across sites.

Contradiction Point 1

Customer Preference for Cloud Services vs Colocation

It involves the company's strategic focus and customer preference for cloud services versus colocation, which impacts the company's business model and risk profile.

Is there interest in cloud services at Sweetwater 1, and would you consider hosting there? - Paul Golding (Macquarie Research)

2026Q1: IREN is currently more attracted to the risk-adjusted returns in GPU as a Service. - Kent Draper(CRO)

What are the average contract durations for the cloud business, and are additional agreements required for HPC colocation capacity? - John Todaro (Needham)

2025Q4: The cloud offers shorter payback periods with stronger margins, making it a compelling opportunity. - Kent Draper(CRO)

Contradiction Point 2

GPU Financing and Availability

It addresses the availability and financing options for GPUs, which are crucial for the company's ability to scale and expand its AI cloud business.

Can you break down the GPU and ancillary equipment costs in Dell’s $5.8 billion order? - Brett Knoblauch (Cantor Fitzgerald)

2026Q1: Kent Draper: The order includes significant networking equipment for GPU clusters, which is a substantial cost. - Kent Draper(CRO)

Could you clarify the financing options for GPUs and the financing availability between GPU and colocation projects? - Joseph Vafi (Canaccord Genuity)

2025Q4: We have secured 100% GPU financing, enhancing our ability to scale our AI cloud business. - Anthony Lewis(CFO)

Contradiction Point 3

Microsoft Deal and Strategic Value

It highlights a change in the strategic approach and the value proposition of a critical deal with Microsoft, which could impact the company's growth strategy and investor perceptions.

What is the strategic value and return profile of the Microsoft deal, and what are the hurdle rates for future deals? - Nick Giles (B. Riley Securities)

2026Q1: The strategic value lies in serving a hyperscale customer like Microsoft, demonstrating our integrated data center capabilities. - Daniel Roberts(Co-Founder, Co-CEO & Executive Director)

How should we assess your plans to utilize Prince George's capacity and future growth? Why isn't GPU CapEx explicitly stated on Slide 16, given the 50 exahash figures for Horizon 1 and Sweetwater? - Nick Giles (B. Riley Securities)

2025Q3: We are focused on capital and risk-adjusted returns for AI cloud growth. We are in discussions with customers for multiple GPU clusters, considering GPU financing and customer contracts for growth. - Daniel Roberts(Co-Founder and Co-CEO)

Contradiction Point 4

AI Cloud and Colocation Services

It indicates a shift in the company's focus on AI cloud versus colocation services, which may have implications for the company's future growth and revenue streams.

Was colocation with Microsoft considered, or did they seek AI cloud services? - Darren Aftahi (ROTH Capital Partners)

2026Q1: Conversations with Microsoft evolved over time, focusing on AI cloud rather than colocation. Different hyperscalers have varying preferences, but IREN pursues the AI cloud due to its strong risk-adjusted returns. - Daniel Roberts(Co-Founder, Co-CEO & Executive Director)

At what stage could a partnership make sense—would it accelerate a definitive agreement at Horizon 1 or relate to scaling later? - Nick Giles (B. Riley Securities)

2025Q3: We are open to partnerships for capital financing and equity, especially for large projects like Sweetwater. We consider the risk profile and cost of equity to determine the best financing method. - Daniel Roberts(Co-Founder and Co-CEO)

Contradiction Point 5

GPU and Ancillary Equipment Costs

It involves differing explanations of the cost breakdown for a significant order, which could impact financial projections and investor understandings of the company's operational efficiency.

Can you break down the GPU and ancillary equipment costs in Dell's $5.8 billion order? - Brett Knoblauch (Cantor Fitzgerald)

2026Q1: The order includes significant networking equipment for GPU clusters, which is a substantial cost. - Kent Draper(Chief Commercial Officer)

How does your CapEx per megawatt compare to market benchmarks? What do clients for Horizon 1 and beyond look like? - Darren Aftahi (ROTH Capital Partners)

2025Q3: We leverage existing data center designs and electrical infrastructure, enabling cost-efficient construction. - Kent Draper(Chief Commercial Officer)