Summary Iris Energy is a lesser-known Bitcoin miner that offers a greater opportunity for leveraged returns compared to its peers. IREN's business model involves selling the Bitcoin it mines, which simplifies its operations and reduces the likelihood of dilution. IREN's co-CEOs, who have relevant experience in infrastructure and capital markets, contribute to its potential for growth and outperformance in the market. Investing in Bitcoin mining is capricious and highly speculative. Nonetheless, they remain one of few publicly traded methods offering the opportunity for leveraged returns relative to the performance of Bitcoin. During this cycle, I believe there may be a new best choice among the Bitcoin miners trading on an exchange within the United States. I hope to explain some of the reasons I have added exposure to Iris Energy ( IREN ), with the expectation it should be one of the best performing large Bitcoin miners available within the domestic marketplace. The primary reason IREN appears to offer a greater opportunity than most of the large peer Bitcoin miners is due to it being less known. IREN was not publicly traded in advance of the last halving and Bitcoin’s prior peaking back in 2021. In fact, IREN had the dubious timing of going public on November 17, 2021, which coincided with the start of a two-year downturn. Now, though, we are back to and through those 2021 highs, with the potential to develop new peaks. Google Finance with red data by ZVI BAR Another reason IREN may have remained less visible is due to it being incorporated under the laws of New South Wales, Australia. Also, the company was previously known as Iris Energy, and only rebranded itself as IREN in February of this year. Please note that back in 2020, I took the opposite approach, believing that the oldest and best known Bitcoin miners like Riot Platforms ( RIOT ) and Marathon Digital Holdings ( MARA ) were the best bets due to the scrutiny they sustained through the prior cycle (See articles from August , November , and December 2020). What’s rather interesting to me is that despite being one of the newer miners, IREN's model appears to be more traditional. What I mean by this is that IREN actually sells what it mines. Conversely, most of the large publicly traded Bitcoin miners switched to a ‘hodl’ strategy. While this distinction may reduce the potential for significant revaluation of the balance sheet, it also leaves IREN with a much simpler business model that allows for less shenanigans at the corporate level. In particular, without selling what is mined, such miners should be expected to have a greater likelihood of substantial future dilution. I also suspect the development of an increasing correlation with excessive executive compensation and those corporate structures that do not prioritize operating business revenue. This is not to say that IREN is unlikely to dilute existing shareholders. Quite the contrary, as IREN will definitely dilute shareholders and even issued a shelf secondary offering in May of this year. Rather, I expect all Bitcoin miners that are attempting to grow their hash-rate must and shall do dilutive secondaries, or some sort of dilutive financing. Simply put, those with a hodl strategy are more likely to require more secondaries in order to finance their growing exahash ambitions due to a lack of operating cash flow. It should be recognized that IREN responded exceedingly well in the wake of announcing the most recent shelf secondary last month. In fact, valuation spiked upward after the company reported its quarterly results and the secondary details. Spiking upwards after reporting a secondary is a very positive sign, as the normal response to a secondary is to re-price lower. This is a strong indication that the market is beginning to recognize that IREN is undervalued and starting to re-value it to fall more in line with its peers. IREN Q3 Earnings Presentation IREN is already among the largest publicly traded Bitcoin miners in terms of both market capitalization and installed hashrate. Further, it is one of few that is currently profitable. This is not merely because they mine Bitcoin for less than their costs, but because they have made the decision to sell Bitcoin on a daily basis. This provides not merely profit but usable positive operating cash flow. IREN's operating efficiency and mining capacity indicates it should be reevaluated closer to the market valuation of RIOT. If the company can reach its lofty exahash growth goals, it is likely to deserve a greater valuation than that. At the moment, RIOT has a market capitalization of about $2.8 billion, while IREN's market cap is about $1.1 billion. Even if we were to split the difference, that would indicate IREN should have a roughly $2.0 billion market cap, or about $16 per share. If IREN makes good on its expectations of reaching 30 EH/s by the end of 2024, and Bitcoin pricing maintains or increases in the interim, a proper valuation would likely be $3-4 billion, and potentially well over $20 per share. IREN's operating cash flow is being reinvested into the company's ambitions for growth, and not only their Bitcoin mining operations. IREN's business model grew to include data centers for power-hungry processes such as generative AI and related complex computing. Operating AI data centers should be a very complementary business to Bitcoin mining, as both require large optimized facilities with access to competitively priced energy, and ideally renewable energy. This secondary line of business is likely to smooth out IREN's performance through future Bitcoin cycles, and could eventually attract a second investor base. It seems reasonably likely that investors will increasingly allocate into high-speed parallel processing of complex computations that are powered by cheap and renewable energy sources. It also seems somewhat probable that the marketplace will eventually lump both business models under a combined asset class that I currently think of as nodes acting as utilities. The main difference between IREN's two business divisions is that the Bitcoin model mining requires Application-Specific Integrated Circuit ('ASIC') hardware, while the AI model requires Graphics Processing Unit ('GPU') hardware. In addition to having two lines of business, IREN also has co-CEOs. They are the co-founding brothers and both appear qualified for the tasks at hand, with highly relevant experience. Dan and Will Roberts also both have experience working at divisions of Macquarie, which is not only one of Australia's larger financial services conglomerates, but also the world's largest infrastructure asset managers. Daniel Roberts worked at Macquarie Capital and subsequently became part of Palisade Investment Partners, an infrastructure fund manager. Will Roberts was a vice president at Macquarie Group in the Commodities & Global Markets division that makes investments in mining projects and manages commodity price risk. Further, Will co-founded Macquarie’s Digital Assets team. IREN is not one of the older and better known Bitcoin miners, but it is among the faster growing large and publicly traded ones. Further, IREN is co-founded and run by seemingly serious co-CEO brothers that have highly relevant infrastructure and capital markets experience. The company has set forth ambitious growth projections for its Bitcoin mining capacity and is also diversifying into the business of AI data centers. IREN appears undervalued relative to peer publicly traded bitcoin miners. It is likely that this undervaluation is at least partially due to it entering the marketplace after the prior cycle. IREN also has the potential for less than average dilution compared to other publicly traded Bitcoin miners. This makes it substantially likely that it will outperform those peers in the near term.
