$6 billion hype or structural risk? Inside the Firmus ASX listing

$6 billion hype or structural risk? Inside the Firmus ASX listing

The upcoming listing of Firmus on the Australian Securities Exchange (ASX) is being pitched as a generational opportunity to capitalise on the artificial intelligence boom, yet a closer examination of the company’s artificial intelligence (AI) Factory model reveals a series of architectural and financial cracks that prospective investors should scrutinise.

While the company has secured a staggering $6 billion valuation and the apparent backing of Nvidia, its path to market is paved with bold claims, aggressive efficiency metrics, and governance questions that leave me, other fund managers, and some IT Infrastructure experts sceptical.

One of those red flags concerns the structure of the float itself, with reports from The Australian indicating that the initial public offering (IPO) has been pitched with no escrow or share-sale restrictions for early investors. This lack of a lock-up period, which is standard practice to prevent founders and seed investors from dumping shares on day one, suggests that retail investors may unwittingly be providing exit liquidity for early backers who could be highly incentivised to offload their stock. You don’t ever want to be cannon fodder.

That urgency to sell could be compounded by extreme concentration risks in boutique venture capital (VC) or  private equity (PE) funds where Firmus has grown to represent over 60 per cent of total fund value due to rapid valuation markups.

Then there’s the technical side. Firmus’ prospects rely on claims of what some reports suggest is unprecedented efficiency, specifically a Power Usage Effectiveness (PUE) of 1.03. To understand the gravity of that claim, you have to consider the formula PUE =Total Facility Power / IT Equipment Power, where a perfect score is 1.0. While global hyperscalers like Google and Microsoft struggle to dip below 1.2, and typical Australian facilities operate between 1.4 and 1.7, Firmus’s claims of 1.03 have been described by Dr. Amr Omar of the University of NSW as being at the extreme end of global possibility.

Now, to be fair, the company has since admitted that the figure was a point measurement from 2021 and not independently verified.

Beyond the cooling efficiency, the fundamental physics of the operation are daunting; as Dr. Omar noted, a 100-megawatt IT load remains a massive, and unrelenting strain on the electrical grid regardless of PUE.

This has already led to political friction in Tasmania, where Firmus’ deal for power from Hydro Tasmania has sparked pushback from local figures like Greens MP Tabatha Badger, especially given that legacy industries like the Boyer Paper Mill were previously told the grid lacked the capacity for their own green transitions.

Further complicating the operational narrative is scepticism about job creation and retention. While Firmus has promised between 50 and 100 full-time staff for every 50 megawatts of capacity, AI expert, Professor Toby Walsh has publicly doubted these figures in interviews with the ABC, noting that modern automated data centres rarely require such high levels labour.

Then there’s the company’s reliance on liquid immersion cooling, which introduces another complexity, requiring a global pool of specialised technicians that is currently very limited.

And don’t forget, this asset-heavy model is a significant departure from the company’s origins as a Bitcoin mining operation, a pivot that has led some fund managers to question if the infrastructure was truly purpose-built for enterprise AI or simply adapted from a more speculative sector.

Finally, there are the financial acrobatics, which are equally polarising. Let’s call it ‘venture-led vendor financing.’

Nvidia is reported to have participated in two funding rounds, the first to raise A$330 million and the second to raise A$500 million. In the first round, Ellerston is said to have invested A$45 million, leaving A$285 million to be split among institutions such as Regal, Archibald Capital, and NVIDIA. If NVIDIA followed its typical venture-led playbook (for example, as in Coreweave and Lambda), it would have contributed between 10 and 22 per cent of the round or between A$30 and A$75 million.

In the second round, based on Bloomberg and Seeking Alpha reports, NVIDIA and US-based private equity funds, ‘cornerstoned’ the round, carrying the bulk of the financing.  

As an aside, the lack of transparency regarding NVIDIA’s exact equity percentage is another point in the sceptic’s case. By investing an undisclosed amount of equity (likely tens of millions, and quite possibly less than A$100 million), NVIDIA effectively unlocked A$830 million in equity for Firmus and a subsequent $10 billion debt facility – the vast majority of which will return to NVIDIA as hardware revenue.

And given that early backers have already seen a nearly 300 per cent valuation uplift in just a few months, don’t you think the lack of share dealing restrictions (escrow) suggests they will look to realise those gains by selling to IPO buyers? What do they know about Power Usage Effectiveness, Rack Power Density or GPU utilisation rates?

And in the context of NVIDIAs Current Annualized Run Rate: US$272.4 billion, it’s investment in Firmus is a rounding error, ensuring much more comes back to it through Chip purchases.

By taking small equity investments from Nvidia to secure priority chip allocations, Firmus gained a ‘halo effect’ that attracted other big-name investors and facilitated massive debt.

The whole thing creates a symbiotic loop where Nvidia’s investment flows back to its own balance sheet as hardware revenue, while Firmus is left with staggering upfront capital expenditures.

These Golden Handcuffs mean Firmus is entirely beholden to Nvidia’s shipping, which is known to be a critical bottleneck for the entire AI industry amid reports of several structural delays with chips taking up to a year to be delivered. Meanwhile, Firmus will be paying interest on massive loans.

If the AI boom slows or compute power becomes oversupplied, the unforgiving economics of depreciating GPUs and high debt could be catastrophic.

Combine that with concerns about the absence of publicly transparent, long-term, binding customer contracts and the widely reported personal history of the company’s co-founder, whose insider trading conviction presents a significant governance hurdle for institutional funds, and then add the absence of any escrow arrangements, which means early investors can dump shares whenever they want, as well as the company’s paper valuation skyrocketing from $1.9 billion to $6 billion in mere months, and the gap between hype and reality has rarely looked wider for an ASX listing.

It all reminds me of the Indefinite Optimism that emerged in the early 1980s and was articulated in Peter Thiel’s book Zero to One. When the long bull market began, finance eclipsed engineering as the way to approach the future. Instead of working for years to invent a new product, indefinite optimists rearranged already-invented ones.  Did Firmus simply pivot to AI, rearranging a Tassie bitcoin mining operation and bolt on some modern vendor financing to create instant on-paper billions? Time will tell, and while I can’t offer any advice for investors, I’ll be letting this one list with my wallet zipped up.

MORE BY RogerINVEST WITH MONTGOMERY

Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.

Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances. 

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