Nvidia-backed Firmus scraps US$5bil Australian IPO on poor demand

SYDNEY: Australia's Firmus, a data centre operator backed by Nvidia, shelved its US$5 billion initial public offering, citing market volatility and conditions, and said it would opt for a private fundraising round instead.

Firmus' IPO would have been the second-largest new share sale in Australia's history but met lukewarm demand, a warning sign that investors remain selective about AI issuers even as the artificial intelligence boom drives global markets.

"Firmus will now pursue capital from the private markets and consider alternative public and private market options," Firmus said in a statement, adding the terms did not correctly reflect the strength of its business and long-term growth outlook.

"The board therefore concluded that proceeding with the offer was not in the best interests of the company and its shareholders," it said.

The company initially planned to sell its shares at AUS$11 each, giving Firmus an equity valuation of US$30.6 billion, nearly triple the US$10.5 billion valuation it achieved following a fundraising round at the start of August.

Firmus, backed by major AI companies and investors Nvidia and Coatue Management, along with Blackstone and Jane Street, designs and operates ​modular AI factories using proprietary energy and cooling technology.

It currently has two leased online data centres in Melbourne and Singapore and plans to build five more across the Asia-Pacific. Its draft prospectus said it would make US$5 billion in annual earnings within five years from the data centres.

Firmus' valuation jump made investors wary, given the company had only two centres operating and had no track record of building any AI data centres.

"They were asking for a very big price tag for what would likely be expected to happen in the future assuming near flawless execution," said Joseph Koh, a portfolio manager at Blackwattle Investment Partners, who looked at the Firmus IPO but did not bid for stock.

"And so I think the market wasn't comfortable taking that leap of faith quite at this stage yet," he said.

With debt of about US$30 billion, according to analysts working for the IPO's joint lead managers, the company founded in 2019 would have had an enterprise value of US$60 billion, more than some of Australia's longest-established companies.

Fund manager Ten Cap's co-founder Jun Bei Liu said the pulled Firmus deal showed a broader shift was taking place in which investors were becoming more focused on the economics of AI investments and converting infrastructure spending into returns.

"I think the Firmus situation represents an important reality check for the AI investment boom, but I wouldn't interpret it as the beginning of the end of the AI trade," Liu said.

"There are certainly Firmus-specific issues, particularly around the speed of its valuation increase, the enormous capital requirements and the execution risks associated with delivering its ambitious expansion plans."

VALUATION WORRIES

The world's largest technology companies, including Nvidia and SpaceX, are still busy tapping debt markets for tens of billions of dollars, while Anthropic is seeking to raise as much as US$100 billion in an IPO.

But in the latest sign of investors' concerns about returns from AI, US-listed chipmakers, which have soared over 80 per cent so far this year, fell 3.4 per cent on Thursday in the wake of a report from the Financial Times that OpenAI's annualised revenue was US$20 billion less than the company previously signalled.

Firmus' term sheet sent out when the deal launched had said indicative offers for the IPO were already enough to cover the transaction. Investors started to pull those orders on Wednesday as they began to lose confidence in the deal, one person involved in the transaction said. The person could not be named discussing information that was not public.

Investors had grown more wary after being told on Tuesday about escrow arrangements that would have allowed more than half the stock to be sold by existing investors from day one. That sparked worries existing investors could sell huge amounts of shares, potentially hurting Firmus' early trading performance.

The company considered cutting the price of the shares to entice more investors to place orders, the person said, but opted instead to look towards a private funding round.