{"id":932459,"date":"2026-10-18T09:48:08","date_gmt":"2026-10-18T09:48:08","guid":{"rendered":"https:\/\/www.newsbeep.com\/au\/932459\/"},"modified":"2026-10-18T09:48:08","modified_gmt":"2026-10-18T09:48:08","slug":"firmus-ipo-collapse-exposes-cracks-in-ai-valuation-bubble","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/au\/932459\/","title":{"rendered":"Firmus IPO collapse exposes cracks in AI valuation bubble"},"content":{"rendered":"

The spectacular failure of neocloud start-up Firmus, previously the darling of Australia\u2019s AI scene, has exposed the \u201ccracks\u201d in a trillion-dollar industry largely built on imagination.<\/p>\n

Firmus, an \u201cAI factory\u201d firm building data centres here and in Asia, this month pulled its Initial Public Offering (IPO) for the Australian stock market<\/a> after investors baulked at an extraordinary $44 billion valuation.<\/p>\n

Be the first to know when news breaks. Download our new app<\/a><\/p>\n

Analysts had criticised its desired price as \u201cgreedy\u201d, saying it was hard to see how a company with just two running data centres could demand such a high value.<\/p>\n

\"CEO<\/p>\n

But the high-profile flop has also raised questions about the enormous valuations placed on the mega AI players like Anthropic and OpenAI seeking to go public in coming months, and how investors will react when it comes to the crunch.<\/p>\n

A similar story to Firmus\u2019 has been playing out on the global scene, with several others in the data centre game recently pulling IPOs of their own or seeing stock prices crash.<\/p>\n

Senior market analyst Henry Jennings told news.com.au there were question marks over the whole neocloud funding model, pointing to the \u201cunravelling\u201d of the debt-laden company Firmus had modelled itself on<\/a>.<\/p>\n

\u201cFirmus\u2019 playbook, what they were following \u2026 was a company in the US called CoreWeave,\u201d he said. \u201cWhich is kind of in the same space.<\/p>\n

\u201cAnd (Firmus) said to all their investors, \u2018Now look at the success of CoreWeave. If that\u2019s so good, we will be even better\u2019. <\/p>\n

\u201cBut the problem with CoreWeave is that is unravelling very quickly as well.\u201d<\/p>\n

CoreWeave lost 15 per cent of its stock price in a single day last week, with its bond yields rising to the same figure as it languished in $US35.6 billion in debt.<\/p>\n

\u2018Cracks\u2019 appearing in market<\/p>\n

The Wall Street Journal reported that an industry summit taking the pulse of community resistance to data centres and a new lack of investor confidence in the US last week included a discussion topic of \u201care we screwed?\u201d<\/a><\/p>\n

Reports on Nvidia-backed Firmus\u2019 failure to reach its IPO goal cited unexpectedly soft demand from US investors.<\/p>\n

Market analyst Michael Frazis asked after Firmus pulled its plans whether the failure would \u201cblow up the global AI trade\u201d.<\/p>\n

\u201cIs this the straw that breaks the camel\u2019s back?\u201d he asked.<\/p>\n

\u201cHas the market closed for these kinds of raises (there are a number in the pipeline) or was this Firmus-specific?\u201d<\/p>\n

Mr Jennings explained there were major concerns over the returns for chip makers and data centre builders spending billions on development in a high inflation environment.<\/p>\n

\u201cThe question marks have been always: all this money being spent on AI, will they get the return on investment that is necessary?\u201d he said.<\/p>\n

\u201cAnd with costs blowing out because of the debts getting more expensive, that\u2019s certainly not helping the argument.\u201d<\/p>\n

He said big tech companies like Google, Amazon, Apple and Meta were \u201changing in\u201d and partially holding up the Nasdaq and the S&P 500. <\/p>\n

\u201cBut there certainly are cracks appearing at the moment. And that is somewhat worrying,\u201d he said.<\/p>\n

Equity Mates co-founder Bryce Leske said Firmus made the right call in pulling its IPO, adding the data centre scene\u2019s struggles proved investors were not willing to back AI \u201cat all costs\u201d.<\/p>\n

\u201cAI has given markets a big lift over the last few years and has provided investors with some phenomenal returns, but higher interest rates are now making some investors take a harder look at the companies that need to borrow a lot of money to build,\u201d he said.<\/p>\n

Asked how exposed the stock market currently was to AI, Mr Leske said the 10 biggest companies in the US made up 40 per cent of value on the top 500 firms. <\/p>\n

\u201cMost of them are tech giants that are betting big on AI \u2013 Nvidia, Microsoft, Alphabet, Meta, Broadcom, Amazon, Tesla,\u201d he said.<\/p>\n

\u201cSo if you\u2019re holding a US index fund, you likely have a large exposure to AI.\u201d<\/p>\n

\u2018Blue sky\u2019 valuations<\/p>\n

Firmus\u2019 $44 billion valuation, despite pulling in only $US50 million in revenue last year, would have made it the biggest float on the ASX since Telstra in the 1990s and taken it inside the nation\u2019s top 20 biggest companies.<\/p>\n

But that pales in comparison to the companies making the AI models Firmus hoped its proposed data centres would help to power in the coming years.<\/p>\n

Anthropic plans to list on the US market in November with a slated value of $US2 trillion.<\/p>\n

That\u2019s despite its prospectus revealing the company made an operating loss of $US8 billion in 2025. The Claude-maker says its revenue is growing and had reached profitability this week.<\/p>\n

OpenAI\u2019s plans for an IPO are a little more clouded, with a public listing pushed to 2027.<\/p>\n

The company behind ChatGPT revealed on October 9 its revenue was $US20 billion less than the $70 billion it had projected in the year to September. It has been eyeing a $US$1.4 trillion valuation.<\/p>\n

Elon Musk\u2019s SpaceX, which is partly an AI company, entered the US market as the biggest IPO ever this year and this week had a market cap of $US2.07 trillion.<\/p>\n

Mr Jennings said the age of AI meant new metrics were needed to value the likes of these companies, similar to the dotcom boom of the 1990s.<\/p>\n

\u201cAnd a lot of that value is built through blue sky or even in some cases with SpaceX, missions to the moon and data centres on the moon and missions to Mars, which get the imagination stirred,\u201d he said. <\/p>\n

\u201cBut they could be a long way off. <\/p>\n

\u201cSo there\u2019s a lot of hope built into these valuations. It\u2019s very hard to value that hope. And that is one of the risks.\u201d<\/p>\n

\u2018The very core of AI\u2019<\/p>\n

Josh Gilbert, lead analyst for APAC at eToro, believes the likes of Anthropic and OpenAI would not face the same issues as Firmus, saying they had \u201creal demand and revenue\u201d.<\/p>\n

\u201cThey sit at the very core of AI,\u201d he said.<\/p>\n

Although he agreed valuations were still \u201cthe question mark when it comes to any huge AI listing\u201d, and Anthropic\u2019s valuation was now \u201cmore than double what private investors valued it at in May\u201d. <\/p>\n

\u201cThat shift from private to public pricing is exactly where Firmus stumbled,\u201d he said.<\/p>\n

\u201cFirmus doesn\u2019t really dent the AI trade, it just shows investors aren\u2019t prepared to pay a sky-high valuation simply because a company is part of the biggest theme in markets for years, which is very astute at this stage of the cycle. <\/p>\n

\u201cThe appetite for AI is still enormous, and Anthropic\u2019s listing will show how deep it runs, but investors have already started separating the businesses monetising AI at scale from those still being priced on forecasts.\u201d<\/p>\n

Famous Wall St trader Steve Eisman, the basis for Steve Carrell\u2019s character in The Big Short, recently spoke about the structural risks behind the AI build-out<\/a>.<\/p>\n

The man who made $US1 billion from picking the 2008 housing crash said he worried about a \u201cconcentration risk\u201d where the \u201cwhole chain basically flows to Anthropic and OpenAI\u201d. <\/p>\n

\u201cIf there\u2019s a problem with those two companies, then I think the whole chain is in trouble,\u201d he said.<\/p>\n

Mr Eisman also pointed out how some of the major tech firms, like Meta, were using private financing agreements to fund infrastructure off the balance sheet.<\/p>\n

\u201cThere\u2019s something like $500 billion worth of AI debt being raised this year. How much of that is off-balance sheet, I don\u2019t know yet; I don\u2019t think it\u2019s insignificant,\u201d he said.<\/p>\n

\u201cI think the reason why they\u2019re doing some of these off-balance sheet shenanigans is they\u2019re trying to preserve their credit ratings as much as possible.<\/p>\n

\u201cSo if you can get it off-balance sheet it\u2019s like poof, magic, it doesn\u2019t exist, and the ratings agencies won\u2019t count it. I\u2019ve seen this movie before. <\/p>\n

\u201cIt usually doesn\u2019t end well.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"The spectacular failure of neocloud start-up Firmus, previously the darling of Australia\u2019s AI scene, has exposed the 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