Canceled, Delayed AI and Data Center IPOs Reveal Growing Investor Caution

The combined effect of multiple negative influences is causing investors to become increasingly cautious about the prospects for AI and related company IPOs. 

These factors include the poor performance of recent IPOs, rising interest rates, growing political opposition to data centers, competition from cheaper Chinese models, concerns about AI risk and the fear that the AI funding market is beginning to tighten. As a result, some offerings are being delayed, a few even canceled. But the larger implication is that while this does not necessarily mean the AI boom has peaked, it does reveal a growing investor uncertainty about how long it can continue. JL

Corrie Driebusch and colleagues report in the Wall Street Journal:

Rising  interest rates, a jumpy stock market and heightened political uncertainty are creating a dicey outlook for tech companies that had been aiming for a fourth-quarter public offering, causing some to reconsider their timing. A selloff in memory chip makers on Tuesday spurred by concerns about competitive threats from China was a reminder of how sensitive investors are to adverse developments. Shares in CoreWeave and Nebius also traded down, continuing a weeklong slide. The latest signs of cooling interest came when two data-center companies, Airtrunk and Firmus Grid, pumped the brakes on their public offerings within a few days. market conditions and local backlash to AI data centers could cause the funding market to tighten. Investors are being choosier about new stock offerings, reserving capital for Anthropic’s planned offering later this year. Poor performance by recent IPOs is also deterring investors.

Just a few months ago, companies connected to the AI business couldn’t go public fast enough, as far as investors were concerned. Suddenly, the IPO waters are looking a lot less inviting. 

Rising interest rates, a jumpy stock market and heightened political uncertainty are creating a dicey outlook for tech companies that had been aiming for a fourth-quarter public offering, causing some to reconsider their timing. 

The planned IPOs of Anthropic and OpenAI have both been subject to that uncertainty and a driver of it, with other firms shifting their plans around what are expected to be among the largest public debuts in market history. Anthropic plans to host an investor day at its San Francisco headquarters on Wednesday after pushing its timeline back by several weeks. 

The latest signs of cooling interest came when two Australian data-center companies, Airtrunk and Firmus Grid, pumped their brakes on their public offerings within the span of a few days.

Firmus cited “recent market volatility and prevailing market conditions” in canceling what would have been the country’s largest IPO in 30 years, with a planned raise of almost $5 billion. The company, which has a close relationship with Nvidia and is backed by Coatue and Blackstone, plans to raise funds privately and go public on a U.S. exchange next year, a person familiar with the matter said. 

Airtrunk, which was preparing to list in Singapore, now hopes to go public in the first half of next year, The Wall Street Journal reported. The company, which is also backed by Blackstone, was concerned about market volatility and interest rates.

The artificial-intelligence trade has powered the market to records, but some pockets of the industry are giving investors anxiety. A selloff in memory chip makers from Micron to Samsung on Tuesday spurred by concerns about fresh competitive threats from China was a reminder of how sensitive investors are to adverse developments. Shares in CoreWeave and Nebius, two so-called neocloud firms, also traded down, continuing a weeklong slide.

Those factors, along with a domestic political environment that is increasingly hostile to data centers and wary of AI’s impact, are weighing on companies across the AI infrastructure landscape.

In Las Vegas last week, data-center operators, investors and bankers gathered at the Wynn hotel to discuss the state of the industry.

A number of attendees voiced concerns that market conditions and local backlash to AI data centers could cause the funding market to tighten, slowing down projects and derailing deals. The topic of one discussion panel: “Are We Screwed? Power, Capital, Compute and Billions of Dollars at Risk.”

Bankers advising data-center developers on sales and capital raises said the backlash is causing some buyers to view infrastructure companies as a risky investment. 

That means sellers are getting less credit for projects that are in their pipeline—or not yet built—as buyers increasingly question whether those projects will be completed on time and on budget, bankers and investors said. Public and private investors are also getting more wary about new AI data-center developers with little experience completing projects.

When SoftBank’s SB Energy made its IPO paperwork public in late August, it revealed that the firm doesn’t have any data centers in operation. SB Energy is behind a 10-gigawatt project in Ohio for OpenAI and says that it has more than $400 billion in its backlog, a figure representing estimated future revenue based on binding customer contracts.

The Journal reported that SB Energy delayed its IPO date after getting pushback on its potential valuation. People working on the deal also cited adverse market conditions.

In addition to volatility and interest rates, investors are being choosier about participating in new stock offerings, with some saying they are reserving capital for Anthropic’s planned offering later this year. Poor performance by recent IPOs is also deterring investors.

Despite the market jitters, there are still several data-center startups that are pressing ahead toward public offerings. Nscale, a cloud company based in London that counts former Meta executives Nick Clegg, Sheryl Sandberg and Fidji Simo among its board members, is aiming for a public debut in the coming weeks. People with knowledge of the company’s thinking acknowledged that the timing wasn’t ideal. 

Another cloud company planning to go public is Lambda, which is also backed by Nvidia, Blackstone and Coatue and just opened up its final, $4 billion pre-IPO funding round, the Journal reported last week. Lambda hasn’t yet filed a prospectus, but plans to go public next year, people familiar with the matter said.