Shares of IREN Ltd (NASDAQ:IREN) declined 5.4% in late trading Wednesday, settling at $43.28, as the broader neocloud sector came under pressure. The sell-off was triggered by a Bloomberg report indicating that Meta Platforms (NASDAQ:META) is exploring a cloud business to monetize its excess AI computing capacity. The news sent CoreWeave (NASDAQ:CRWV) down 14.3% and Nebius Group (NASDAQ:NBIS) sliding 15.7%, reflecting heightened sensitivity in the AI infrastructure space.
Meta's potential entry into the cloud market is still in early stages, with Reuters noting that plans may evolve. Meta declined to comment. Gil Luria, managing director at D.A. Davidson, commented to Reuters that adding Meta's capacity would likely impact neocloud providers more than the large hyperscalers. Meta shares, however, rose 9.1% on the day, closing at $614.65.
For IREN, the valuation picture is now under scrutiny. At the close, the company's market capitalization stood at $14.43 billion, which is approximately 4.7 times the $3.1 billion in annualized run-rate revenue (ARR) it disclosed in May. Jefferies initiated coverage on IREN on June 18 with a Buy rating and a $79 price target, implying an 82.5% upside from the current price. At that target, IREN's market cap would reach $26.3 billion, or about 8.5 times its contracted ARR. The stock remains 45.2% below that target.
The pressure extended to other names in the AI-cloud and bitcoin mining crossover space. Core Scientific (NASDAQ:CORZ) fell 6.8%, Cipher Digital (NASDAQ:CIFR) dropped 6.3%, and TeraWulf (NASDAQ:WULF) declined 4.6%. Quiver Quantitative noted no obvious negative press releases or SEC filings from IREN as of July 1, suggesting the move was driven by sector sentiment rather than company-specific news.
IREN's bull case hinges on its ability to convert its power assets, data centers, and funded GPUs into paid cloud revenue before pricing pressure from large players like Meta materializes. The company reported in May that it expects to reach 480 megawatts of capacity in 2026, all under contract. However, the $3.1 billion in ARR includes deals that will not generate revenue until GPUs are delivered and operational. Co-founder and co-CEO Daniel Roberts stated, "The world is structurally short compute."
A key component of IREN's strategy is its partnership with Microsoft (NASDAQ:MSFT). In November, IREN announced a five-year, $9.7 billion GPU cloud deal with Microsoft, utilizing NVIDIA (NASDAQ:NVDA) GB300 GPUs. Dell Technologies (NYSE:DELL) will supply hardware worth approximately $5.8 billion. On June 1, IREN closed a $3.65 billion investment-grade GPU financing facility linked to the Microsoft contract, carrying a blended cost of 6.00%. With customer prepayments, the financing covered about 96% of the $5.81 billion GPU capital expenditure for Microsoft, resulting in an average funding cost of 3.31%.
Jefferies' initiation report on June 18 highlighted IREN's transition away from bitcoin mining toward AI cloud services and its roughly 6 GW powered land bank. However, Reuters reported in November that Microsoft can terminate its contract with IREN if delivery deadlines are missed, placing schedule risk at the forefront for the stock. At the current market price of under 5x contracted ARR, the valuation depends critically on timely GPU deliveries, data center openings, and customer utilization.
The broader market reaction underscores the fragility of neocloud valuations when supply dynamics shift. If large tech companies like Meta begin selling excess capacity, the multiples on contracted AI infrastructure revenue could compress. For IREN, the path to reaching Jefferies' $79 target requires executing on its pipeline while navigating potential competitive pressure from hyperscalers.
