Investing.com - In a research note relased on Thursday, Culper Research cast a shadow over Iris Energy Ltd (NASDAQ:IREN), a firm originally focused on bitcoin mining that is now rebranding as a high-performance computing (HPC) data center operation.
Culper's analysis suggests that this strategic shift is more superficial than substantive, and the company's capabilities and potential in the HPC field are being misrepresented.
The report underlines that IREN's existing facilities, all established before April 2023, are not well-equipped to handle HPC workloads without significant further investment. Furthermore, Culper points out that the company's co-CEOs, Daniel and Will Roberts, have begun selling their shares as of February 2024, a first since the company's IPO.
Analysis of IREN's flagship Childress facility reveals a lack of crucial features for HPC applications, such as backup power or uninterruptible power supplies. IREN's assertion that its air cooling system will be adequate for GPU clusters in Texas is also doubtful considering the state's much higher temperatures compared to British Columbia, where IREN has previously conducted GPU tests.
Culper also criticizes IREN's financial pronouncements, specifically its claim that its undeveloped land and power agreements are worth between $5 and $12 million per MW, suggesting billions in latent value. The research firm contends that IREN has inaccurately quoted a Morgan Stanley (NYSE:MS) research note to substantiate this claim.
As a result, according to Culper, IREN's shares are significantly overvalued compared to both M&A comps and publicly traded peers. If IREN's shares were valued at a similar multiple to recent M&A deals, such as CoreWeave's offer for Core Scientific, RIOT's offer for Bitfarms, and CleanSpark (NASDAQ:CLSK)'s offer for GRIID, the share price could be 55% lower.
The research firm believes that IREN's misrepresentations will eventually be exposed and that the company will continue to be a significant drain on cash.
Using recent public deals in the sector as a benchmark, Culper argues that IREN's overvaluation is evident. These deals averaged a valuation of $2.5 million per MW. If this valuation multiple were applied to IREN, its share price would fall to $5.75, a 59% decrease from its current price.
In sum, Culper Research's report implies that IREN's market valuation is considerably inflated, with analysis suggesting that the company's worth could be 52% to 79% less than its current market price based on a sum-of-the-parts basis.