IREN shares have fallen to their lowest level since August of last year as investors pull back from companies in the neocloud sector — newer cloud providers that buy GPUs and rent computing capacity to AI companies — on fears that the artificial intelligence bubble could burst. The stock dropped to $24.25 on Tuesday, down more than 68% from its highest point last year. The Bitcoin miner-turned-AI data center operator is scheduled to publish its financial results on Thursday, November 5, leaving open the question of whether the shares can recover after the report. Technical analysis currently points to further downside.

Headwinds Continue to Build

IREN, formerly known as Iris Energy, has slumped sharply in recent months as ongoing concerns about its business have weighed on investor sentiment. One of the main issues is that the neocloud industry has become intensely competitive, with companies such as Lambda, Nscale, and Firmus fighting for market share. Virtually all of the large Bitcoin mining companies — including Riot Platforms, MARA Holdings, and Cipher — have moved into the industry.

Financing has emerged as another major challenge, pushing companies such as IREN, CoreWeave, and Nebius to borrow heavily. IREN's debt has jumped to more than $7.85 billion, up sharply from $3.85 billion in January. A recent report estimated that Bitcoin miners venturing into the AI data center industry face a $50 billion funding gap.

Questions are also being raised about the AI data center industry itself. In a recent report, Gartner estimated that companies in the sector will need to announce impairment charges worth trillions of dollars over the next few years. Such write-downs stem from the underlying business model: IREN buys GPUs and leases them to hyperscalers and other AI labs, but the chips depreciate over time, forcing the company to upgrade them.

Another headwind is that IREN has not announced major deals this year. Last year, it struck a $9.3 billion agreement with Microsoft and a smaller $2.8 billion deal with several AI labs. By contrast, Nscale secured a $45 billion deal with Anthropic.

Earnings Due November 5

The next important catalyst for IREN shares will be its financial results, due on November 5. The report will provide more detail about the state of the business and the progress the company has made in the past few months. With the AI cloud segment overtaking Bitcoin mining as the larger revenue source last quarter, the figures will show whether that shift holds, and readers will also be watching for any newly announced customer contracts — something absent from IREN's year so far — as well as an update on a debt load that has more than doubled since January.

The most recent results showed revenue slowing to $137.2 million in the June quarter from $144 million in the March quarter. The AI cloud business generated $70 million, exceeding the $66 million produced by the Bitcoin mining segment. The decline was driven by a substantial retreat in Bitcoin revenue as prices and output fell.

Analysts expect that trend to continue in the upcoming results. The average estimate among analysts points to a 9.13% revenue drop in the quarter. For the full year, analysts forecast revenue of $2.81 billion, followed by $7.4 billion next year. A persistent challenge is that the company will likely keep posting negative free cash flow as the cost of doing business rises.

Technical Analysis Points Lower

The daily chart shows IREN shares in a strong downward trend, coinciding with weakness in other neocloud companies such as CoreWeave and Nebius. The stock has slipped below the important support level of $29.17, its lowest level on July 29.

It has also fallen below all of its moving averages and the 61.8% Fibonacci Retracement level. Trading below that level confirmed the bearish view.

Consequently, the technical analysis suggests the stock will likely continue to fall, with sellers targeting the next significant support at $20. On the flip side, a move above the crucial resistance level of $29.17 would invalidate the bearish outlook.

This article provides market information, not investment advice. Stock investments involve volatility and the potential for losses.