AI hopeful Firmus struggles to sell investors on $44 billion valuation
Firmus is facing pressure to slash its IPO price as investors question its $44 billion valuation, unproven business model and ambitious AI data-centre expansion plans.
Firmus Technologies faces the prospect of cutting its valuation before its planned ASX debut after investors balked at the artificial intelligence infrastructure company’s $US30.6 billion ($43.7 billion) price tag.
Firmus had planned to raise $US5 billion from investors this week at $US11 a share, but a lack of demand at that price could force its investment banks to discount the shares to secure enough buyers.
Market speculation late on Wednesday suggested the offer price could be cut to as little as $9 a share, an 18 per cent reduction that would value the company at a little over $US25 billion, or about $35 billion.
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By continuing you agree to our Terms and Privacy Policy.The repricing, if confirmed, may mean Firmus raises less than its targeted $US5 billion and would enter the ASX with a substantially lower valuation than originally planned.
Even at that price, the listing would be the biggest Australian initial public offering since Telstra in 1997, with final bids from invited investors due on Thursday afternoon.
The share market hopeful has attracted fierce criticism from some fund managers over its limited operating history, changing strategy, lack of detail over its plans to construct data centres at costs lower than rivals, and loss-making status.
“If it is being repriced it shows that a flawed structure in a highly speculative company designed to benefit insiders at the expense of retail clients has been seen for what it is,” said Andrew Brown the founder of investment fund East 72 Dynasty Trust.
Other professional investors and existing shareholders including Wilson Asset Management and Regal Partners argue Firmus will prove good value to IPO investors. Their logic is that AI is still early stage and booming demand for it over the next decade will underpin Firmus’ growth.
Bond yields surge
Firmus has not confirmed that its proposed listing valuation or offer price will be cut.
The company’s 56-page pathfinder prospectus, distributed to prospective investors this week, forecasts earnings before interest and tax of $US5.8 billion in calendar 2029 on revenue of about $US13 billion.
Those forecasts depend on Firmus successfully expanding from its existing operations and building seven data centres across Australia, Indonesia and Malaysia by 2029.
The scale of the expansion will require substantial borrowing, leaving Firmus exposed to a sharp increase in global borrowing costs as investors demand higher yields from governments.
On Thursday morning the benchmark risk-free rate and cost of borrowing rate the US 10-year yield hit 5.36 per cent, at its highest level since 2002.
The rise in bond yields threatens to make debt-funded infrastructure projects more expensive, while reducing investor appetite for speculative technology companies whose valuations depend heavily on future growth.
‘I think the market for AI clearly exists but none of us are sure what the total size of it and over what time frame,” said Brown. “AI’s undoubtedly overinflated near term and adding debt to the mix at a time of massive government deficits pushing rates higher is lethal.”
Firmus remains scheduled to begin trading on the ASX on October 23, in what would be one of the largest listings in Australian market history.
