Key facts
- Firmus Technologies is reportedly slashing its valuation ahead of its anticipated ASX debut.
- The company's valuation has been described as 'fanciful' by an investment manager.
- Firmus has contracts with Meta, OpenAI, and Nvidia, but 97% of contracted revenue is on sites not yet built.
- The company's valuation increased from $1.85 billion to almost $44 billion in just over a year.
- Firmus plans to list on the ASX on October 23, but the IPO is now in doubt.
- Investors were to be asked to pay $11 per share, a price that may be radically reduced or lead to withdrawal.
Firmus Technologies, an AI datacentre company, is reportedly facing significant pressure to reduce its valuation just weeks before its anticipated initial public offering on the ASX. Multiple sources briefed on the matter told Guardian Australia that the company is slashing its valuation to attract skeptical investors, and may even withdraw its IPO altogether.
On Thursday, Firmus abruptly withdrew from a scheduled appearance at a parliamentary inquiry into artificial intelligence, amid discussions aimed at salvaging the deal, which had been billed as potentially the largest IPO in Australia in decades.
Alarm bells have been ringing regarding Firmus's valuation, which had reached nearly $44 billion for a company still in its start-up phase. Investors are now frantically re-pricing the company to a level they deem more acceptable. One investment manager described the situation as 'fanciful,' noting that the business is losing hundreds of millions of dollars while its valuation continued to rise.
In the lead-up to its planned listing, Firmus raised money from investors including Nvidia, Blackstone, Jane Street, and Coatue. Over the past year, successive capital raisings drove Firmus's valuation from $1.85 billion to $15 billion about eight weeks ago, and then to almost $44 billion days ago, a figure that is now being heavily revised due to tepid investor support.
Firmus's business model centers on building and operating liquid-cooled "AI factories" equipped with Nvidia GPUs to capitalize on surging AI expenditure. However, a key risk for investors is the price they are paying for a company facing numerous operational obstacles. Firmus currently has only two small operational sites, with seven contracted and four planned facilities. According to Armina Rosenberg, co-founder of Minotaur Capital, approximately 97% of the contracted revenue is tied to sites that have not yet been built. Rosenberg stated that the company would only approach its offer price if delivery, financing, and renewals proceed as planned.
The company's high valuation and anticipated future earnings depend on the prompt construction of its unbuilt pipeline, a process that is facing local community opposition in some regions. While Firmus's focus on Asia may avoid some of the backlash seen in Australia and the US, it presents its own challenges, including power constraints and construction timelines.
Firmus's valuation also assumed continued heavy AI expenditure from hyperscalers like Microsoft, Google, and Meta. Morningstar analyst Lochlan Halloway warned that market sentiment surrounding Firmus had entered the euphoric phase of Charles P Kindleberger's five-stage bubble framework, suggesting that while the company is not 'empty hype,' investors might be paying too steep a price.
The company's plans to list on the ASX on October 23, which would have been the largest IPO since Telstra in 1997, are now uncertain. Investors were initially expected to pay $11 per share, a price that is likely to be significantly reduced or lead to the withdrawal of the IPO.