Scarcely known outside its home market until this week, Elice on Tuesday found itself at the heart of a roiling debate about AI valuations and whether companies will be able to deliver on them.
The $750 million data centre and AI developer became a surprise poster child for the loss of faith in so-called neoclouds when it tanked 32% on its debut in Seoul. It joined a half dozen other companies in the sector that just over the past few weeks have shown investors souring on artificial intelligence. Australia's Firmus Grid and AirTrunk have delayed public offerings, Britain's Nscale and US peer SB Energy faced investor pushback on their valuations, and CoreWeave's bond yields shot up to 15%.
In a sharp reversal from the broad-based pile-in of recent years, global markets are now being much more selective and demanding with AI bets. Neoclouds, the firms that specialise in running dedicated facilities for AI computation delivered over the internet, are an essential part of the supply chain that customers like Anthropic PBC and OpenAI tap in multibillion-dollar deals for capacity. But worries about financing, delays in data center construction and the uncertainty of returns have jolted the entire tech ecosystem, triggering the longest losing streak in semiconductor stocks since the global financial crisis.
"Elice's disastrous debut is another confirmation that the era of 'buy everything AI' has given way to 'question everything AI,'" said Hebe Chen, senior market analyst at Vantage Global.
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Neoclouds are particularly vulnerable. New Jersey-based CoreWeave is the best known among them, pioneering the business model of taking on significant debt to load up on Nvidia graphics processing units (GPUs) that it later rents out in multiyear contracts. Its 18 months on public markets have shown the wild swings of confidence in this strategy: the company's market value approached $90 billion last year, with Nvidia a vocal backer and investor, but it's endured a brutal selloff since then and is now more than 60% off its peak.
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Firmus's initial public offering valuing it at $30 billion collapsed, while Nscale is facing investor skepticism on a listing at a similar valuation. The two have run into the real-world challenges of converting AI computing demand and orders into functional operations, as both have only a small fraction of their planned data centre capacity live. As the cost of capital increases, investors are becoming more wary of companies depending heavily on future revenues.
Soaring borrowing costs were the catalyst for CoreWeave's most recent selloff. Its bonds this month sank into distressed territory - leading Nvidia chief executive officer Jensen Huang to step in to reassure markets - while AI investor SoftBank Group's credit risk rose to the highest level in nearly four years. SB Energy is SoftBank's vehicle for setting up AI infrastructure in the US, but its IPO talks have slowed to a crawl and regulatory approvals have also taken longer than expected.
One of the world's most enthusiastic investors in AI, SoftBank faces pressure on several fronts. Its largest holding is a significant share in OpenAI, which already pushed its IPO into next year, and the SB Energy debut was designed to help it raise funds to support its construction projects in the US. SoftBank pushed through the largest corporate junk-bond offering on record last month, raising roughly $11 billion.
