Oliver Curtis, the co-CEO of AI infrastructure company Firmus and noted insider trader conspirator, has run off to Singapore in the wake of the spectacular crashing and burning of his company’s float. He leaves a host of unanswered questions in his wake: in particular, why the float’s bankers tried telling local investors it was effectively oversubscribed when, 48 hours later, a massive discount was being considered due to lack of interest, with the whole IPO launch then being axed entirely.
As the Financial Review’s Joyce Moullakis suggested, the corporate regulator should be interested in the, shall we say, excited nature of some of the Firmus spruiking coming from underwriters and brokers. But any ASIC action is unlikely to be as painful as the hundreds of millions in fees that the likes of JP Morgan, Morgan Stanley and Bank of America saw go up in smoke. Couldn’t have happened to a nicer bunch of bankers.
Curtis is trying to spin the disaster as a “great loss” for Australia, not just a bunch of US banks, except that Australians already have plenty of exposure to data centres via companies with more appealing financial models. Local super funds and the government’s Future Fund avoided Curtis’ former bitcoin-mining company entirely, already having substantial investments in NEXTDC, Goodman and CDC. (Firmus actually had a huge $73 billion deal with CDC that collapsed after the company’s supposedly brilliant new cooling system flooded one of CDC’s data centres in Melbourne.)
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It’s clear Firmus’ ambitious, debt-fuelled plans for expansion worried the people responsible for finding the best returns for the retirement incomes of ordinary Australians. And early investors who’d already sold their Firmus stakes to crystallise substantial paper profits didn’t help impressions that the company’s projected numbers might not have withstood contact with reality.
As some investors and analysts privately noted, another absentee from the float was Macquarie Group, the most experienced Australian financial group regarding data centre financing, operation and development. It’s made several impressive deals in the US, Australia and Asia in the area, most notably AirTrunk, which it sold to Blackstone for more than $24 billion in 2024. For some marketers, Macquarie being absent from the Firmus deal was a red flag.
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Curtis and co are small fry given the global level of data centre investment, but it’s illustrative of a bigger problem with growing investor unease about the trillions being tipped into AI, a technology we’re constantly told is revolutionary but which has yet to produce much hard evidence of its benefits (meanwhile we are paying the massive “verification tax” — the often arduous task of checking that AI output is accurate — that it entails).
Earlier this month, online giant Amazon was reportedly looking to shift around US$8 billion of valuable Nvidia AI chips off its balance sheet to external investors via a “special purpose vehicle” (SPV). That phrase should induce some unwelcome memories for investors around in the 2000s, when hundreds of billions were hidden in SPVs by banks, property companies, insurance companies and other investors.
SPVs are separate, bankruptcy-remote and often opaque legal entities established to hold a group of assets that may have a higher risk than other assets on the parent’s balance sheet. They played a key role in the lead-up to the global financial crisis of 2007-08, being the vehicles created by banks for what became catastrophically toxic mortgage investments.
Those SPVs, effectively forming a shadow banking industry, then issued their own mortgage-backed securities and collateralised debt obligations to global investors to raise more money from fees and whatever income was generated by the mortgages. But when those mortgages began defaulting, SPV-backed structures froze, triggering the global contagion for both investors and the banks that created them.
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Now the balance sheets of the tech giants are coming under pressure from the debt they’re accruing to fund a multitrillion-dollar investment in chips and data centres. Amazon alone could spend US$220 billion this year, most of which is going into its chips and other equipment for data centres run by its AWS cloud computing business. Even though it has a current market valuation of US$2.83 trillion, with billions of dollars of cash flow, that’s a big ask for Amazon: on June 30, it had cash, bonds, shares and other marketable securities valued at around US$123 billion. That’s up from a year earlier, but its debt at June 30 was US$129 billion, nearly double the US$65.9 billion a year earlier.
According to the Financial Times, tech giants are seeking “creative ways to finance massive spending on data centre infrastructure. Much of the cost associated with the build-out of these facilities is tied to the chips used to train advanced AI models. Tech companies are pursuing a range of strategies to move debt off their balance sheets to preserve their creditworthiness.”
This is a giant version of the fundamental problem that deterred investors from Firmus. The sunny uplands of massive AI revenue can only be reached via truly historic levels of investment, and even for a global giant like Amazon, that means a lot of debt. And with much of the associated revenue still speculative, as businesses struggle to identify exactly how AI is going to deliver its promised “revolution”, that’s debt with a level of security that investors are increasingly unhappy with.
Phrases like SPVs, “creative ways” and “preserve their creditworthiness” will be setting off alarm bells for some investors given such vehicles have a history of being used to hide bad deals and poor-quality assets. If all that expected profit fails to materialise, or there’s a sudden lurch in the cost of borrowing, things could get toxic very quickly indeed. And then it’ll be every banker for themselves.