Australian data center company Firmus cancelled its initial public offering last week, citing weak investor demand. The Motley Fool's Anthony Di Pizio argues this may signal that funding for AI infrastructure is drying up, which would hurt chip suppliers Nvidia and Micron. Both stocks look cheap, but that could prove a value trap if semiconductor demand slows.
Firmus pulled its IPO at the last minute because of a lack of investor demand. The Australian company had been on track for one of the biggest initial public offering listings in the history of the Australian stock market. According to Motley Fool, the withdrawal suggests funding might be starting to dry up for the AI industry.
The company built a data center in Melbourne that houses the largest cluster of Nvidia's Blackwell Ultra chips in the Southern Hemisphere. The offering would have raised approximately $5 billion at a $30 billion valuation.
Yet another crack in the AI boom
Nvidia says the top-five hyperscale companies are on track to spend around $800 billion on AI data center infrastructure in 2026 and could spend a further $1.3 trillion in 2027. As a result, demand currently outstrips supply for Nvidia's GPUs and Micron's high-bandwidth memory.
But AI companies are passing costs on to users. OpenAI introduced a $500-per-month subscription plan, a 150% increase over its $200-per-month plan. A Financial Times report suggests OpenAI's annualized revenue is now tracking at $50 billion, below the $70 billion reported earlier by other outlets, which might be a sign customers are pulling back.
Cost pressure is spreading to businesses. A UBS Group survey found that 60% of businesses are diverting some AI workloads to cheaper, more efficient models. Those models typically consume less computing power, which could result in lower demand for chips.
Nvidia and Micron trade at lower multiples
Nvidia trades at a P/E ratio of 29.1 as of Oct. 9, less than half its 10-year average of 61.3.
Micron is cheaper still, with a P/E ratio of 13.9, against 23.3 for the S&P 500 and 34.6 for the Nasdaq-100. With an uncertain demand outlook and more supply scheduled to come online over the next couple of years, it appears Wall Street is betting the data center memory boom will be short lived.
The next test arrives within a month, when hyperscalers release results for the quarter ended Sept. 30. A pullback in capital expenditures would point to a slowdown in semiconductor demand.
Source: Motley Fool
Trading involves risk.
Risk Disclaimer
