Iren targets $3.4B in annualized AI cloud revenue by end of 2026 as Microsoft contract drives expansion

Earnings Call Insights: IREN Limited (IREN) Q1 2026

MANAGEMENT VIEW

* Daniel Roberts, Co-Founder, Co-CEO & Executive Director, opened by stating that "fiscal year 2026 is off to a really good start. We delivered a fifth consecutive quarterly increase in revenues and a strong bottom line." He highlighted revenue reaching $240 million and adjusted EBITDA at $92 million, noting both were positively impacted by an unrealized financial gain on financial instruments.
* Roberts announced a $9.7 billion AI cloud contract with Microsoft, characterizing it as "a defining milestone for our business that underscores the strength and scalability of our vertically integrated AI cloud platform." The agreement includes a deployment of NVIDIA GB300 GPUs at the Childress campus and a 20% upfront prepayment, expected to generate approximately $1.94 billion in annual recurring revenue.
* The company is executing a plan to scale its GPU fleet from 23,000 today up to 140,000 by the end of 2026, projecting this will support around $3.4 billion in annualized run rate revenue.
* Roberts emphasized the strategic value of vertical integration, stating, "we control the entire stack from the substation all the way down to the GPU... this end-to-end integration and control is a key differentiator that positions us for significant growth."
* Expansion includes an additional 40,000 GPUs at Mackenzie and Canal Flats campuses, expected to generate about $1 billion in additional ARR. This growth leverages only 16% of IREN's secured power portfolio.
* The company is enhancing its Childress site to accommodate phased delivery for Microsoft, ensuring the facilities are engineered to Tier 3 equivalent standards and able to support future chip generations.
* Anthony Lewis, Chief Financial Officer, stated, "Q1 FY '26 marked our fifth consecutive quarter of record revenues with total revenue reaching $240 million, up 28% quarter-over-quarter and 355% year-over-year."
* Lewis described the Microsoft contract as supporting "an estimated 85% project EBITDA margin," highlighting the capital-efficient structure with prepayments and targeted leverage, and reported cash at the end of October at $1.8 billion.

OUTLOOK

* Management expects the Microsoft contract to generate $1.9 billion in annual revenue once the four phases come online, with an 85% project EBITDA margin as described by CFO Lewis.
* The company plans to scale its GPU fleet to 140,000 by the end of 2026, which is expected to provide a pathway to $3.4 billion in annualized run rate revenue.
* Expansion will be executed in a capital-efficient manner using existing data centers, and management reiterated continued "disciplined, measured" growth.
* There is substantial optionality for future growth, as the planned expansion uses only a fraction of the company's secured power.

FINANCIAL RESULTS

* IREN reported Q1 FY '26 revenue of $240 million, representing a 28% increase quarter-over-quarter and a 355% rise year-over-year, as stated by CFO Lewis.
* Adjusted EBITDA was $92 million, reflecting strong margin performance partially offset by higher payroll tax expenses tied to share price performance.
* Operating expenses increased, mainly due to higher depreciation and share-based payment expenses.
* The company reported an unrealized gain on prepaid forward and cap call transactions related to convertible note financings.
* Cash at the end of October stood at $1.8 billion, with upcoming CapEx for the Microsoft project to be funded through a combination of cash, operating cash flows, customer prepayments, and additional financing.

Q&A

* Nick Giles, B. Riley Securities: Asked about the strategic value of the Microsoft deal and return profile. Roberts said, "proving that we can service one of the largest technology companies on the planet has a little bit of strategic value... we've designed everything from the substation down... and that has been deemed acceptable by a $1 trillion company."
* Giles also asked about GPU deployment for Microsoft. Kent Draper, Chief Commercial Officer, said each phase of Horizon would accommodate 19,000 GB300s, with designs future-proofed for up to 200 kilowatts per rack.
* Paul Golding, Macquarie Research: Inquired about pricing dynamics and demand. Roberts responded that "we're seeing a lot of demand. That demand appears to increase month-on-month," and Draper noted strong pre-contracting for GPU clusters.
* Brett Knoblauch, Cantor Fitzgerald: Asked about CapEx efficiency for the Canadian expansion. Draper explained the required CapEx is minimal, related mostly to replacing ASIC racks with standard data center racks and PDUs.
* Darren Aftahi, ROTH Capital Partners: Asked if Microsoft considered colocation. Roberts explained the preference was for cloud, with a 20% prepayment funding one-third of CapEx and a 35% plus equity IRR.
* John Todaro, Needham: Queried contract penalties. Roberts confirmed confidence in delivery timelines, noting, "we have never ever missed a construction or commissioning date in our life as a listed company."
* Stephen Glagola, JonesTrading: Asked about GPU contracting in British Columbia. Draper said over 12,000 of 23,000 GPUs were contracted, with strong demand for the remaining capacity.

SENTIMENT ANALYSIS

* Analysts showed positive sentiment, frequently congratulating management on the Microsoft deal and expressing strong interest in strategic details and financial returns.
* Management was confident and emphasized disciplined execution, as seen in statements like "we are really pleased to lead us towards that $3.4 billion in ARR by the end of 2026 on returns that are pretty attractive."
* Compared to the previous quarter, management tone shifted from excitement about growth potential to high confidence following a landmark contract, while analyst tone grew more focused on strategic execution and capital efficiency.

QUARTER-OVER-QUARTER COMPARISON

* In the previous quarter, focus was on scaling AI cloud and data center capacity, with annualized revenues approaching $1.25 billion. The current quarter highlights a major transition to hyperscale AI cloud contracts, with explicit revenue targets of $1.9 billion from Microsoft and a $3.4 billion run rate goal.
* Guidance language shifted from potential expansion and project ramp-up to concrete, contracted milestones and high-margin expectations.
* Analysts in Q1 2026 concentrated on specifics of the Microsoft contract, capital structure, and risk-return, while prior quarter questions focused more on scalability and customer diversification.
* Management's confidence increased, underpinned by secured contracts and robust financial results, as opposed to the prior quarter's focus on positioning and growth opportunity.

RISKS AND CONCERNS

* Management acknowledged incremental cost increases associated with enhanced data center design but stated these investments "provide long-term value protection."
* Analysts raised questions about delivery timelines and contract penalties; Roberts stressed a strong track record of meeting construction and commissioning dates.
* Financing for large-scale GPU purchases was discussed, with Lewis outlining strategies involving prepayments, additional leverage, and diversified funding sources.
* There are confidentiality constraints around customer negotiations and future expansion beyond the Microsoft deal, but management indicated ongoing discussions with other parties.

FINAL TAKEAWAY

IREN Limited delivered record financial results in Q1 2026, anchored by a transformative $9.7 billion AI cloud contract with Microsoft that is expected to generate $1.9 billion annually and drive expansion to 140,000 GPUs by the end of 2026. Management emphasized disciplined growth, robust capital structure, and a strategic focus on vertical integration, while signaling strong customer demand and substantial future growth optionality. The company’s focus now turns to executing its large-scale GPU deployments and monetizing its significant power and land capacity, positioning it for continued leadership in the AI cloud market.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/iren/earnings/transcripts]

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