Is Iren the Next Winner of Nvidia's Neocloud Spending Spree?

Iren (NASDAQ: IREN) has rallied by more than 45% year to date, and its recently announced deal with Nvidia (NASDAQ: NVDA) added to the momentum. The GPU leader will support Iren in deploying AI chips for up to 5 gigawatts of its data centers. That sets the stage for substantial revenue growth for Iren.

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The terms of the deal

Iren was already a heavy buyer of Nvidia's processors, but this new strategic partnership gets the chipmaker more involved with Iren's infrastructure. Iren will be able to align its AI data centers with Nvidia's DSX design, and get those data centers up and running sooner.

That's a win for both companies. Accelerated time frames for deployments put Iren on course to generate higher annual recurring revenues sooner while giving Nvidia the ability to sell more chips.

As part of their deal, Nvidia also got the right to purchase up to 30 million Iren shares at $70 per share at any time over the next five years. That would amount to a $2.1 billion investment if Nvidia acts upon it, for a stake that would represent a little less than 10% of the company.

This isn't the first time Nvidia has taken the equity route in a partnership with a neocloud company. It invested $2 billion in CoreWeave at $87.20 per share. That partnership also involves helping an AI data center builder scale to more than 5 gigawatts at a faster rate.

Nvidia's deal with Nebius was of essentially the same scale -- a $2 billion investment and assistance with scaling beyond 5 gigawatts. Both of those recent investments have become profitable for Nvidia, and with Iren stock charging toward $70 per share, it looks like it will soon be another win for Nvidia's portfolio.

How this deal positions Iren

Not only did Iren deepen its relationship with Nvidia, but the company also signed Nvidia as an AI cloud customer. It's a five-year agreement for 60 megawatts of Iren's existing capacity in its Childress, Texas, campus. It's valued at $3.4 billion, which comes to $680 million per year.

Iren's Sweetwater 1 facility remains untouched, despite having 1.4 gigawatts energized. It's a high-demand site for a tech giant that needs to bring more AI computing power online right now, not in a few years. Iren's continued purchases of Nvidia processors indicate it expects big deals in the future, and such deals could lead to the market rapidly re-rating the stock.

For instance, in November, Iren signed a five-year deal with Microsoft for $9.7 billion. That was a well-covered deal that Iren bulls know about already, but deals of this magnitude can just appear out of nowhere. That agreement only covers 200 megawatts, so Iren can pull off multiple deals like that one at its Sweetwater 1 site.

Iren also entered a purchase agreement with Dell for air-cooled Blackwell systems to accelerate time-to-compute for the $3.4 billion Nvidia deal. While making that announcement, Iren raised its annualized revenue run rate from $3.7 billion to $4.4 billion.

The Nvidia deal has already played a meaningful role in management's projections, and the broader agreement could become a major catalyst for Iren.

Marc Guberti has positions in Iren. The Motley Fool has positions in and recommends Microsoft and Nvidia. The Motley Fool has a disclosure policy.