Australian data center operator IREN Limited (IREN) — originally a Bitcoin mining firm now aggressively expanding into the AI cloud market — announced a $9.7 billion cloud services agreement with Microsoft (MSFT) yesterday, sending its shares up 12%.
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The deal represents a significant milestone for IREN, propelling the company into the emerging “neocloud” sector, a space centered on offering GPU-as-a-Service solutions for enterprises seeking high-performance computing power to support AI workloads. IREN stock has undergone a remarkable rally so far this year, rising from approximately $10 per share in June to $68.54 today.
The agreement also marks a significant win for Microsoft, which has been contending with AI infrastructure capacity constraints. Just last week, Microsoft CFO Amy Hood noted that the company’s AI capacity crunch is expected to persist through at least 2026, underscoring the ongoing struggle across big tech to secure sufficient computing resources for AI expansion.
While this partnership bodes well for IREN’s growth trajectory, I remain neutral on its long-term prospects. However, I’m Bullish on Microsoft, which I believe is well-positioned to achieve meaningful growth acceleration over the next several years.
MSFT Deal Boosts IREN’s Diversification Efforts
IREN began its operations in 2019 as a Bitcoin miner. After expanding its data center capacity while mining Bitcoin, the company officially started its diversification journey in 2024, following the establishment of the AI Cloud Services business.
In Fiscal 2025, the AI cloud business generated revenue of $16.4 million, representing a 427% increase from $3.1 million in the same period last year. Although this business segment has made progress since its launch by securing small contracts with companies such as Together.AI and FluidStack, IREN had yet to win a major deal until this week. Microsoft’s cloud contract with IREN, spread across five years, represents an annual revenue run rate of $1.94 billion. Compared to the total AI cloud revenue of just $16.4 million reported by the company in Fiscal 2025, this marks a significant increase that raises pulses for shareholders and potential new investors alike.
Before the Microsoft deal, IREN’s AI data center footprint accounted for just 1,900 GPUs as of June 30. However, with the new deal, IREN’s AI data center footprint will expand to more than 100,000 GPUs, making IREN a force to reckon with in the neocloud industry. Other notable players in this business sector include CoreWeave (CRVW) and Nebius Group (NBIS).
IREN Can Help With MSFT’s AI Challenge
My bullish stance on Microsoft stems from the belief that this new partnership will help the company alleviate its ongoing power sourcing and capacity challenges—arguably the most pressing constraint it faces in scaling its AI infrastructure today.
Over the past few months, Microsoft has struggled to secure adequate power to support its expanding AI and cloud operations. In fact, just last month, the company restricted new Azure cloud sign-ups in several key regions, including Texas and Northern Virginia, through mid-2026 due to data center capacity shortages. At a time when the cloud segment is expected to drive the bulk of Microsoft’s revenue and earnings growth, such restrictions could pose serious risks to both its long-term competitive position and short-term market performance.
CEO Satya Nadella recently acknowledged the scale of this issue, noting that Microsoft’s biggest challenge is no longer a chip shortage, but a power shortage.
The new AI cloud contract with IREN offers a strategic solution. It grants Microsoft access to additional data center capacity—including Nvidia GB300 GPUs—without the need to invest billions in building new facilities from scratch. According to Jonathan Tinter, Microsoft’s President of Business Development and Ventures, the partnership leverages IREN’s expertise in designing and operating fully integrated AI data centers, positioning Microsoft to expand capacity more efficiently.
With this deal, Microsoft addresses a critical bottleneck that has constrained Azure’s growth over the past two years, thereby strengthening its ability to meet the surging demand for AI-driven cloud services—a key driver of future performance.
Is MSFT or IREN Worth Buying?
Soon after the deal was announced between Microsoft and IREN, Cantor analyst Brett Knoblauch raised his price target on IREN from $100 to $142 after revealing his growing confidence in the company’s ability to turn its data center capacity into a high-growth opportunity by serving the AI cloud market.
Based on the ratings of 12 Wall Street analysts, the average IREN price target is $66.80, suggesting that the stock is fairly valued today following the recent run-up.
I am neutral on IREN, as I believe the company still needs to prove its worth as a reliable neocloud provider. This could only be assessed by the progress of its partnership with Microsoft.
Meanwhile, Microsoft has been among the best-performing big tech stocks since the advent of commercial AI, just a few years ago. The company continues to be highly rated by Wall Street analysts, as it appears well-positioned to benefit from the growing demand for cloud services and the retail interest in Gen AI.
Based on the ratings of 33 Wall Street analysts, the average Microsoft stock price target is $632.78, which implies upside of 22% from the current market price over the next year.
I am bullish on Microsoft, as I believe the company still has a long runway for growth, given that AI applications continue to expand into new business verticals and use cases, creating robust demand for cloud services.
A Win for Both Sides
Microsoft’s $9.7 billion partnership with IREN represents a significant victory for both companies. For IREN, the agreement validates its strategic shift into the AI data center market, reinforcing its potential as a key infrastructure player in the emerging “neocloud” era. For Microsoft, the deal directly addresses one of its most pressing challenges—securing sufficient capacity and power to support AI growth.
That said, IREN still has much to prove as it transitions from its Bitcoin-mining roots into large-scale AI infrastructure operations, which is why I remain neutral on the company’s long-term prospects.
As for Microsoft, I believe its growth story is far from over. With global AI adoption still in its early stages, the company appears well-positioned to capture the next wave of expansion in cloud and AI-driven computing. I remain bullish on Microsoft.