AI companies eye IPOs with high valuations and low revenue

In short: More AI-focused companies are looking to go public while asking for huge valuations despite bringing in relatively little revenue.

What's going on

Investors are used to companies losing money, but they usually still have meaningful sales. The Financial Times says a small number of listed US companies are expected to make no revenue at all in the next year, and Europe has even fewer.

AI is adding a new twist. Some AI-related businesses have big plans and big price tags, even though their current revenue is small. It is like valuing a new restaurant as if it is a chain of 500 locations, before the first location has a steady dinner crowd.

The FT points to two data centre builders, SB Energy and Nscale, that are preparing for initial public offerings in New York. A data centre is a warehouse full of computers that other companies rent to run apps and AI systems. Both companies reportedly made about $140 million in revenue in the last half year, but they are aiming for valuations of about $50 billion and $35 billion.

To reassure investors, the companies have signed contracts with firms such as OpenAI, Anthropic, and ByteDance. These deals are meant to create a “backlog”, a list of future work and expected payments. The FT notes there is still risk if the data centres are not built on time or within budget.

What to watch

Public market investors have been burned before by very early stage companies, including many that listed through SPAC deals (a shortcut route to the stock market). The next test may come if firms like OpenAI and Anthropic eventually list, especially if overall investor appetite for risk cools.

Source: Financial Times