The IREN stock price has nosedived recently and formed a risky pattern that points to further downside. It dropped to $43 this week, down by over 40% from its highest point this year. So, is it safe to buy the IREN dip or does it have more downside to go?

IREN stock price technicals point to more weakness

The 12-hour chart shows that the IREN share price has slumped in the past few weeks, undoing some of the gains it made a few months ago. 

It has dropped from the all-time high of $76.85 in November to $43 today. As a result, it has slumped to the 50% Fibonacci Retracement level. 

Most importantly, the stock has formed a double-top pattern at $74 and a neckline at $48.40. A double-top is one of the most common bearish chart patterns in technical analysis.

It has already retested the neckline, completing a process known as a break-and-retest patttern in technical analysis. The Supertrend has already turned red and the 50-period and 25-period moving averages are about to cross each other. 

At the same time, the Relative Strength Index (RSI) and other oscillators have all pointed downwards. Therefore, the most likely scenario is where the IREN stock price continues falling as sellers target the 61.8% Fibonacci Retracement level at $32.50. 

On the flip side, a move above the resistance level at $48 will invalidate the bearish outlook. 

IREN stock chart | Source: TradingView

IREN faces major risks ahead

At face value, IREN’s business is thriving as its Bitcoin mining operation benefits from the rising hashrate. This growth will likely continue, albeit at a slower pace as the mining difficulty rises. 

Investors are not buying IREN because of its mining operations. Rather, the main catalyst is its artificial intelligence business, which has continued doing well and has a lot of promise. 

Like other Bitcoin mining companies, IREN is aiming to become a major provider of infrastructure to companies in the AI space. It is targeting hyperscalers like Microsoft and Meta, as well as other smaller companies.

The business model has been validated by other companies like Nebius and CoreWeave. It was also validated recently when it announced a large deal with Microsoft. In it, the company will receive billions of dollars in high-margin revenue for providing data center solutions.

IREN anticipates strong growth in the industry, with the management expecting its AI cloud revenue to get to $3.4 billion by the end of 2026. This is notable as the company made less than $10 million in revenue in the division in the last quarter.

Most of its $240 million in revenue in the last quarter came from its Bitcoin mining operations.

The main risk, however, is that the company is facing substantial competition from other companies in the Bitcoin mining operations that are embracing the technology. Notable names are TeraWulf and Bitfarms. It is also competing with companies like CoreWeave and Nebius.

The impact of all this is that hyperscalers like Microsoft, Google, and Meta Platforms have choices when it comes to finding partnering companies.

Meanwhile, there is a risk in terms of financing as the industry is prohibitively expensive. For example, the company announced that it would raise $2 billion to boost its infrastructure spending. This raising will be in the form of convertible debt and share offerings. 

Like CoreWeave, there is a risk that the company will report losses before its AI business breaks even. CoreWeave, the biggest name in the sector, reported a net loss of $110 million in the last quarter. It has lost over $823 million in the last four quarters.

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