IREN Skyrockets 153.1% in 3 months: Buy, Sell or Hold the Stock?

IREN Limited IREN shares have rallied 153.1% in the past three months, outperforming the Financial - Miscellaneous Services industry, raising the question: Should investors accumulate more IREN shares or exit the stock?

IREN 3 Month Performance Chart

IREN Capitalizes on Growing Traction in AI Data Center Demand

IREN is no longer a pure-play crypto-mining company; it is evolving into an AI Cloud Service Provider. IREN has been planning to capitalize on this emerging AI space as the need for AI compute infrastructure is witnessing a CAGR of 19.4%, per a report by MarketsAndMarkets, much faster than the crypto mining market.

To support its AI-compute endeavors, IREN has secured three gigawatt power sources, struck a partnership with Microsoft and is installing a fully integrated AI cloud infrastructure, which will enable it to serve customers with scalability and cost efficiency while avoiding counterparty risk and collocation cost, proving it to be a strong moat for future growth.

In its British Columbia facility, IREN has set a target of late 2026 to convert its 160MW infrastructure from ASIC miners to GPU-based AI compute. At Childress, IREN is working on Microsoft’s 200MW liquid-cooled data-center with 100MW high-performance AI training clusters, and flexible rack densities up to 200kW. IREN’s 2GW Sweetwater Hub is advancing, with the 1,400MW Sweetwater 1 substation expected to be energized by April 2026 and the 600MW Sweetwater 2 substation targeted for late 2027.

In the crypto mining space, IREN Limited has proved itself to be one of the world’s largest and lowest-cost bitcoin miners. In its recent quarterly results, IREN reported a 17% sequential rise in average operating Hash rate as it focuses on capacity expansion in the Childress data center. This improved operating Hash rate enabled IREN to increase bitcoin mining in the first quarter of fiscal 2026 by 12% on a sequential basis. However, IREN faces some headwinds too.

Key Challenges for IREN in the Crypto and AI Space

IREN’s capacity expansion comes with higher capital expenditure. IREN is spending $5.8 billion on GPUs to stay relevant in the current market. However, it is fulfilling its capital needs with $1.9 billion in customer prepayments, $2.5 billion through credit and contract with Microsoft and $1.4 billion dollars with cash, equity, convertible notes and corporate credit. We can infer that IREN has a small fraction of capital at its disposal to fund expansion, while heavily relying on external contracts and customer prepayment.

IREN’s business is not exactly well diversified yet. AI data center revenues contributed only $7.3 billion in total revenues of $240.3 billion, forming approximately 3% of the top line in the first quarter of fiscal 2026. This leaves IREN’s business exposed to crypto volatility. Furthermore, since crypto mining is an innovation-driven, heavy-capex industry, IREN faces high depreciation expenses and frequent impairment of assets.

Volatility in the cost of utilities also riddles IREN’s business model, as in the first quarter of 2026, IREN’s cost of revenues jumped approximately  52.6% due to a combination of a rise in electricity expenses tied to the higher Hash rate and a jump in net power prices. These factors are partly responsible for shrinking margins in the near term. The Zacks Consensus Estimate for IREN’s second-quarter and third-quarter fiscal 2026 earnings has been revised downward in the past 30 days.

IREN also faces intense competition from Applied Digital APLD and TeraWulf WULF in the AI infrastructure space, and CleanSpark CLSK is transitioning toward it. Applied Digital is an established player in the AI-data center space with its growing expertise in energy efficiency. Applied Digital’s energized infrastructure services to crypto mining customers and the rising high-performance computing (HPC) needs due to the AI revolution make it a strong player in both fields.

TeraWulf’s prospects are expected to benefit from its growing footprint in the HPC domain. TeraWulf’s partnership with Fluidstack, a premier AI cloud platform that builds and operates HPC clusters, is likely to give it an upper hand in this space. Like IREN, CleanSpark is also transitioning from a pure-play crypto mining company to include AI data-infrastructure services in its portfolio. While the AI data center market provides a strong growth outlook, strong competition from already-established players and new entrants like CleanSpark multiplies competition for IREN.

IREN Stock is Overvalued at Present

IREN shares are overvalued, as suggested by the Value Score of F. In terms of forward price/sales, IREN is trading at 8.84X compared with the Zacks Financial Miscellaneous Services industry’s 3.06X.

IREN Forward 12 Months (P/S) Valuation Chart

Here’s Why IREN Stock is Best to Avoid

Despite strong prospects from low-cost bitcoin mining and expanding AI Cloud footprint, modest earnings growth and stretched valuation are risky for investors. Lack of diversification and rising competitors in the data center space where IREN is expanding leads to concern for the investors.

IREN currently has a Zacks Rank #5 (Strong Sell), which implies investors should avoid the stock for the time being.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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