New York, USA – Analyst Jeff Zhang has recently shared his insights on Iris Energy Limited (NASDAQ: IREN) and its long-term investment potential. While analysts generally view IREN as a strong buy with an average price target of $19.08, Zhang’s fundamental analysis suggests that the stock may be overvalued. He presents a base case valuation of $8.26 per share, challenging the consensus targets.

Unlike its competitors like CleanSpark (CLSK), Riot Platforms (RIOT), and Marathon Digital Holdings (MARA), IREN’s strategy involves selling all mined bitcoins, reinvesting the proceeds to expand hash rate capacity and data center infrastructure. Zhang explains that while the market values hash rate capacity at a higher price for large-scale miners, IREN’s approach to reinvest and expand may be more beneficial to shareholders. However, a deeper dive into IREN’s business through a discounted cash flow analysis paints a more complex picture.

Zhang focuses on key assumptions such as Bitcoin price, block difficulty, hash rate expansion, and operating expenses to explain why IREN’s fundamentals may not support the consensus targets. He highlights the speculative nature of bitcoin miner stocks, which often trade based on sentiment and price fluctuations in the cryptocurrency market.

The analysis also delves into the potential impact of Bitcoin’s price on IREN’s cash flows, emphasizing the sensitivity of unlevered free cash flow projections to changes in Bitcoin’s price. Zhang discusses the Bitcoin Power Law theory as a basis for projecting future price movements and underscores the importance of monitoring Bitcoin’s performance in relation to IREN’s valuation.

Furthermore, the article touches on concerns about potential share dilution and funding strategies for IREN, including the company’s reliance on at-the-market offerings to meet cash needs. Zhang also analyzes IREN’s planned hash rate expansion and its implications for future cash flows and share price.

In addition to Bitcoin-related factors, Zhang explores IREN’s foray into the AI cloud business and its potential impact on the company’s overall performance. The analysis provides insights into the efficiency and profitability of this new business segment compared to the core mining operations.

The article concludes by advising investors to carefully monitor IREN’s mining metrics, expansion plans, and electricity costs to gauge the company’s financial health and performance. While Zhang does not recommend IREN as a long-term investment, he suggests that holding the stock through the bitcoin halving cycle into mid-2025 may provide opportunities for short to medium-term gains based on Bitcoin’s price performance.