Editor’s Note: 31 tech leaders flocked to the White House on Tuesday. They were there to discusses “Artificial Intelligence safety.” |
Yet behind the scenes the leaders at Amazon, Nvidia and SpaceX are quietly launching Phase 3 AI. It’s a new breakthrough that could be bigger than ChatGPT. |
Get the full story – right here. |
Not every IPO is a winner. |
Part of my job is pointing out the deals I would skip. One of the largest AI infrastructure IPOs of the fall is on that list. |
Company: Nscale
Target raise: Up to $3 billion
Target valuation: Up to $35 billion |
Nscale filed to go public on September 18. It's a London-based "neocloud" that builds AI data centers and rents Nvidia chips to big tech companies under long-term contracts. It opened its first data center in Norway in August 2024. |
The headline number is impressive. Nscale says it has $103 billion in contracts. Microsoft and Anthropic account for roughly 85% of those expected revenues. |
Here's the problem. |
Nearly all of that backlog depends on data centers that haven't been built yet. Nscale hasn't raised all the money to build them. And it hasn't secured all the Nvidia chips it needs. |
Today the company runs five data centers. It has contracted to build 12 more. |
Phase 3 AI will spark a new wave of demand for compute – and the world isn’t ready. Watch this for my top 5 hidden AI stocks. |
First-half revenue was $140.6 million, up from $10.4 million a year earlier. The net loss over those same six months was $1.02 billion. |
Nscale had $1.5 billion in cash on June 30. Its filing lists $24 billion in equipment purchase commitments due this year and next. It has issued nearly $11 billion in debt since June. Closing that gap means more issuing more debt or equity. |
Anthropic's contract deserves a close look. |
The roughly $45 billion deal is nearly half the backlog. The filing says Anthropic can walk away if Nscale misses delivery milestones. As of the filing, Nscale had no committed financing for that build-out. |
Microsoft is most of the rest. And Microsoft has been building more of its own data centers. |
There are other flags. The S-1 discloses material weaknesses in internal financial controls. And reporting links an early customer to ByteDance, which adds export-control risk. |
Then there's the price. |
Nscale's private round in March valued it at $14.6 billion. In early August, the company was floating an IPO valuation around $25 billion. The reported target is now as high as $35 billion. |
At $35 billion, investors would be paying more than 100 times annualized first-half sales. |
Public rivals CoreWeave and Nebius trade around two to three times estimated 2028 revenue. On that basis, Nscale would need roughly $16 billion in 2028 sales to justify $35 billion. That assumes almost everything gets built on time. |
Unfortunately, huge data center projects often face delays. These are the result of permitting, electricity deals, securing the chips, and much more. |
A more realistic 2028 figure near $8 billion. |
To be fair, the bull case is real. Microsoft and Anthropic want dedicated computing capacity. Nvidia put $1 billion into Nscale's latest convertible financing. And the company has access to low-cost power in Norway and West Virginia. |
Before paying this kind of premium, I'd want to see the Anthropic financing locked in and the 2027–28 delivery schedule on track. |
The price range isn't set yet. I'll revisit Nscale when terms arrive. If it prices well below the reported target, the math may look different. |
While you’re waiting for more details on Nscale… |
Be sure to check out my new research on Phase 3 AI. Frankly, the news headlines are focusing on AI safety. And everyone is missing this huge story. |
Here’s your link to watch now. |
Ian Wyatt
Editor, IPO Watch |
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