AI price check, aisle IPO

Would you pay Equinox prices for a gym with one treadmill? Or penthouse rent for an apartment still under construction? AI investors are starting to ask why they should do the equivalent with IPOs.

SK Hynix shelved plans today for a US listing of its flash-memory unit Solidigm, which had been considering raising $10 billion to $15 billion at a valuation as high as $150 billion. The memory chipmaker blamed market conditions and share-price trends, while stressing that Solidigm’s growth prospects haven’t changed.

AI data-center demand is still driving memory prices higher, and SK Hynix has been benefiting from one of the strongest chip cycles in years. But that hasn’t been enough to make investors comfortable with every price tag attached to the boom.

Mind the markup

Australia’s Nvidia-backed Firmus learned that lesson earlier this month. The AI data-center operator scrapped its planned IPO after investor demand came in weaker than expected. Firmus had been seeking an equity valuation of about $30 billion, nearly triple what investors valued it at in a funding round just two months earlier.

That’s a pretty aggressive markup for a company with limited operating history and roughly $30 billion in debt.

And the gap between what sellers want and what buyers will pay is widening beyond AI. Renaissance Capital says the IPO market is increasingly stuck in a “valuation mismatch” after a strong second quarter encouraged companies to come to market with richer expectations.

Oura ran into a version of that problem in September. The smart-ring maker delayed its US IPO after marketing shares at a valuation above $13 billion. Oura’s deal was reportedly around five times oversubscribed, showing that plenty of demand doesn’t necessarily mean investors will accept the asking price.

Public markets want receipts

Through September, 83 traditional US IPOs raised more than $120 billion, according to PwC. But new listings have returned only about 2% on average this year, compared with a 12% gain for the S&P 500. AI infrastructure offerings have been among the weaker performers, just as investors have grown more focused on profitability, leverage, and whether companies can actually deliver the growth embedded in their valuations.

Even the biggest AI names are feeling some price pressure before they reach the public market. OpenAI has reportedly cut the valuation target for its latest funding round to $1.25 trillion from $1.4 trillion after weaker-than-expected investor demand—a key signal as it raises money ahead of a possible IPO next year.

For everyday investors, that makes the IPO market more than a sideshow. New listings help set the price investors are willing to pay for growth across an entire sector. If public buyers start demanding lower valuations from private AI companies, that could put pressure on the lofty multiples already attached to listed AI stocks, too.

AI demand hasn’t disappeared. Neither has the IPO pipeline. But after years when private investors helped companies name increasingly ambitious prices, public markets are reminding them that asking price and selling price are two very different things.—HC