Alex Gusterman

Bitcoin miner turned AI bubble stock $IREN is up 22% pre-market on announcing a $9.7 billion GPU contract with $MSFT. As always, the devil is in the details. Before it can provide any service, IREN first needs to spend $5.8 billion buying the GPUs and ancillaries. MSFT will provide $1.94 billion upfront, but IREN needs to come up with a further $3.86 billion to fund this capex. Assuming this is debt financed at 10%, the 5-year contract achieves breakeven in year 4. Here's the math: Annual revenue: $1.94 billion Initial capex: $5.8 billion Total interest on loan: $0.77 billion Gross profit: $3.13 billion Annualized gross profit: $626 million IREN currently spends $136 mn on SG&A to capture $500 mn in revenue. That amounts to 27 cents out of every dollar in revenue, down from 38 cents the previous year. Assuming the same run rate and zero depreciation on the new data center facility, the company will spend $528 mn on SG&A to capture the incremental $1.94 bn in annual MSFT revenue. Annualized operating profit = $98 million Let's be charitable and assume the company manages to cut down SG&A to 20% of revenue. Optimistic annualized operating profit = $238 million While "$9.7 billion contract" makes for a great headline, the numbers throw cold water on this fairy tale. Making $238 million on a $5.8 billion investment amounts to a mere 4.1% pre-tax return. The hard truth is data centers are a low-margin business. Microsoft is smart, which is why they have signed this deal rather than build this capability in-house. IREN investors have nothing to cheer for. This deal is inferior to simply buying 10-year US treasuries and calling it a day.

This video of forced mobilization & screaming of Ukrainian man, who was walking his dog, is from my native Volyn Region in Western Ukraine. My relatives and acquittances there told me about such snatching of neighbors on streets & that remaining men are hiding to avoid being mobilized to fight in war.