Microsoft has entered into a significant agreement to purchase artificial intelligence cloud capacity from IREN Ltd. for approximately $9.7 billion. The deal positions Microsoft to expand its AI capabilities amid soaring demand for computing power.
The five-year contract grants Microsoft access to advanced Nvidia accelerator systems located in Texas, a move designed to bolster the infrastructure supporting its Azure cloud services and AI-driven products.
Key Takeaways
- Microsoft has signed a five-year, $9.7 billion deal to buy AI cloud capacity from IREN Ltd.
- The agreement provides Microsoft with access to Nvidia's GB300 accelerator systems in Texas.
- IREN will purchase $5.8 billion in equipment from Dell Technologies to support the deal.
- The contract is expected to generate $1.94 billion in annual revenue for IREN, using about 10% of its total capacity.
A Landmark Agreement for AI Infrastructure
Microsoft's latest move underscores the intense race among technology giants to secure the massive computing resources required for artificial intelligence. The agreement with Sydney-based IREN is one of the largest of its kind, reflecting a strategic effort to meet the surging demand from customers, including partners like OpenAI.
Under the terms, Microsoft will make a 20% prepayment on the total contract value. This capital will help facilitate IREN's own significant investment in the necessary hardware to fulfill the agreement.
The Neocloud Movement
IREN is part of a growing group of companies known as "neoclouds." These specialized data center operators, many of which began in cryptocurrency mining, have repurposed their infrastructure to provide the high-density computing power essential for AI workloads. They offer an alternative to the massive, self-owned data centers of tech giants, providing flexibility and rapid scaling.
This partnership highlights a broader trend where major cloud providers, or "hyperscalers," are leasing capacity from specialized firms. This strategy allows them to quickly expand their AI service offerings without waiting for their own data center construction to catch up with explosive market growth.
Building the Backbone of AI
To deliver the contracted capacity, IREN has committed to a substantial hardware acquisition. The company announced it will purchase $5.8 billion worth of GPUs and related equipment from Dell Technologies Inc. This purchase will focus on equipping its facilities with Nvidia's latest technology.
The core of the deal involves access to systems built on Nvidia's GB300 architecture, which is specifically designed for large-scale AI training and inference tasks. The new systems will be installed in phases through next year at IREN's facility in Childress, Texas.
Texas: A Hub for AI Power
IREN's Texas operations are central to this deal. The Childress facility is planned to support 750 megawatts of capacity. Additionally, the company operates a massive 2-gigawatt site at its Sweetwater Hub near Abilene, which is also attracting significant interest for AI deployments.
Daniel Roberts, CEO of IREN, noted the strategic importance of working with major technology companies.
“We’ve always viewed the major hyperscalers as natural partners. We’ve been in discussions with several of them, and those conversations have accelerated as both their compute requirements and our AI Cloud capabilities have grown.”
Strategic Implications and Market Reaction
The deal represents a major milestone for IREN, transforming the company from a Bitcoin mining operator into a key supplier in the AI infrastructure ecosystem. The contract is projected to generate approximately $1.94 billion in annualized revenue for the company.
Importantly, this massive deal will utilize only about 10% of IREN's total capacity. This leaves significant room for the company to secure additional contracts and further expand its revenue streams from other clients in the AI space.
The market responded positively to the announcement. IREN's NASDAQ-traded shares surged more than 28% in pre-market trading, building on a year where its stock had already risen over 500%. Dell Technologies also saw its stock climb by about 4%, while Microsoft's shares remained relatively stable.
For Microsoft, the agreement is a crucial step in addressing its well-documented cloud capacity shortage. The company has previously acknowledged that it is struggling to secure enough infrastructure to fully satisfy the intense demand for its Azure AI services, making partnerships with firms like IREN essential for its continued growth in the competitive AI market.