Neocloud Concerns Return After Elice Selloff

SPEAKER_1 (0:02)

Bloomberg Audio Studios, Podcasts, Radio, News. Bloomberg Tech is live from the heart of Silicon Valley with Ed Ludlow in San Francisco.

Ed Ludlow (0:22)

This is Bloomberg Tech, coming up, South Korea data center firm, Elice plunges 32% in its market debut, soaking fears about the billions being poured into AI infrastructure. Plus, Anthropic is in talks with Nscale for a massive new computing deal that could be worth as much as $45 billion. And Eric Schmidt's early Anthropic bet could pay off big with a stake worth as much as $20 billion, if Anthropic hits a $2 trillion IPO valuation. It is absolutely all changed. The first hour of the session, chip stocks down, tech stocks down, brought it one point, the SOX was down 2.5% and trading at its lowest level since late July. In the last hour, complete reversal of that. Tech stocks pushing higher, chip stocks in particular rebounded now up 1%.

It was a sell off in chip stocks and technology that stemmed from a concern around NeoClouds. South Korean data center firm, Elice, plunged 32% in its market debut. The country's worst opening day for a sizable IPO on record. Reviving concerns about the billions being poured into AI infrastructure. Bloomberg's Peter Elstrom is with us.

Everyone is reading about this this morning. What on earth happened with this Ellis IPO?

Peter Elstrom (1:33)

Yeah, it's amazing how many times we've been talking about South Korea in this AI boom and where we're seeing a lot of these issues emanate from it. This time it's not Samsung, it's not SK Hynix. It's this company, as you were mentioning, this little data center company called Elice. So they had their IPO. They actually priced it pretty well. They raised a bit more money. They raised at the top of the range and got about $150 million. But as they began trading, the shares traded down very hard. They were down, as you said, more than 30%.

They closed down 32%.

Now, this is part of this concern about what's going on with the NeoCloud push at this point in the buildout. This is more than threes a trend. You've got Firmus, of course, the data center company in Australia that had to pull their IPO. You have these troubles with CoreWeave that we've been detailing in quite a bit. SB Energy had to pull back on their valuation. And also, we've heard that Nscale is probably not going to be able to hit the valuation that it wants as it goes public. So, they're adding up at this point, but this time it was this surprising trigger coming out of South Korea and this company, Elice.

Ed Ludlow (2:35)

You know, I think you're exactly right. It's actually an aggregate everyone's thinking about this sort of change sentiment to NeoClouds. They've lost faith. So, park the quite small South Korean company to one side for a minute.

There is still in Asia, in Asia trading, this lack of faith, and that's spilled open to the US. What else can you tell us, Peter?

Peter Elstrom (2:56)

I think in particular, there are concerns about the financing behind some of these smaller companies. These are not concerns about OpenAI or Anthropic or Google for that matter, but these are the smaller companies that have gotten pretty creative with the financing. We've talked about the circular financing. Nscale, of course, is one of those examples where NVIDIA has backed the company. They have a 10% stake in the company, and Nscale is a huge customer for NVIDIA too. So there's a lot of financial incentive for companies like NVIDIA to sprinkle their money within the system to be able to increase sales and get these build-outs done. But now investors are questioning whether that's going to get across the line. And as we detailed in the story on Nscale that we talked about before, they've had a hard time executing here. The issue is not getting contracts like the one that they may be able to get with Anthropic here, but their issue is they have to be able to get power connected to these sites. They have to be able to get the financing for the GPUs, and then they have to be able to build the buildings. It's execution right now is really top of mind for investors.

Ed Ludlow (3:53)

Bloomberg's Peter Elstrom, thank you very much. And even as investors question this AI infrastructure boom, the deals keep getting bigger. Some new details. Anthropic is in talks with Nscale for a massive new computing deal that could be worth as much as $45 billion, all according to sources. Bloomberg's Baylor Lipsholtz broke this story last night.

It is new because there's an existing relationship between Nscale and Anthropic. And it is counter to some of the other reporting we've done earlier in the week. But let's start with what's new. What do we need to know about this deal?