The momentum behind Firmus Technologies’ high-flying valuation is showing severe cracks just weeks out from its anticipated ASX debut.

Multiple sources briefed on the matter told Guardian Australia the AI datacentre company is slashing its valuation to entice sceptical investors – or may even shelve its initial public offering altogether.

On Thursday, Firmus abruptly withdrew from its scheduled appearance at a parliamentary inquiry into artificial intelligence amid harried discussions to save what was billed as the largest IPO in Australia in decades.

‘Fanciful’

Most of the alarm bells about Firmus have been centred on its near $44bn valuation for a company still in its start-up phase.

Its backers were confident of obtaining this valuation just days ago, but are now frantically re-pricing to find a level that investors will be comfortable paying ahead of an anticipated ASX listing late this month.

“The whole thing was getting fanciful,” said one investment manager briefed on the float.

“It’s a business that’s losing hundreds of millions of dollars, and yet its valuation kept going up nonstop every couple of months.”

In the lead-up to its anticipated listing, Firmus raised money from large investors, including chip maker Nvidia, and Wall Street firms Blackstone, Jane Street and Coatue.

Just over a year ago, Firmus was worth less than $2bn, according to the value placed on it by Nvidia and others as they took equity stakes.

In just over a year, successive capital raising by many of the same core investors drove Firmus’s valuation from $1.85bn to $15bn about eight weeks ago.

That increased to almost $44bn just days ago, although that figure is being heavily unwound due to tepid support.

Key risk facing investors

Firmus has an enticing story to sell given it is designed to cash in on surging AI expenditure by building and operating liquid-cooled “AI factories” packed with Nvidia graphics processing units (GPUs), or chips.

But the key risk facing investors isn’t whether AI will keep growing, it’s whether they are paying too much for a company facing many operational obstacles.

Firmus only has two small operational sites alongside seven contracted and four planned facilities.

While it has contracts in place with Meta, OpenAI and Nvidia, about 97% of the contracted revenue sits on sites that aren’t yet built, according to Minotaur Capital co-founder Armina Rosenberg.

“You only get near the offer price if delivery, financing and renewals all go to plan,” said Rosenberg.

Its high valuation, and anticipated future earnings to support it, rely on the prompt construction of that unbuilt pipeline, at the exact moment that local communities are rebelling against similar developments.

While Firmus’s focus on Asia avoids the growing community backlash against datacentres in Australia – and the US – it comes with its own hurdles, such as power constraints and construction times, says Rosenberg.

Not empty hype

Firmus’s high valuation also assumed that the current, heavy AI expenditure from the so-called hyperscalers, like Microsoft, Google and Meta, continues, unabated.

When that expenditure slows, it will be the third-party datacentres that could be among the first to feel the cold.

Drawing on economist Charles P Kindleberger’s classic five-stage bubble framework – displacement, boom, euphoria, distress, and revulsion – Morningstar analyst Lochlan Halloway warned that market sentiment surrounding Firmus had entered the euphoric phase.

That doesn’t mean Firmus is empty hype, Halloway said, rather, the risk lies in whether investors are paying far too steep a price.

Firmus’s plans to list on the ASX on 23 October, in what would have been the largest IPO since Telstra in 1997, are now in doubt.

Investors were going to be asked to pay $11 per share. That price will either be radically reduced, thereby slashing its valuation, or the float will be withdrawn altogether.

Firmus was contacted for comment.