A.I. Doubts Leave Chip I.P.O.s Sputtering
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When even the biggest winners of the A.I. boom no longer want to go public, the party is over for now: South Korean memory chip giant SK Hynix has just abandoned its review of a U.S. initial public offering for its subsidiary Solidigm. A planned pre-I.P.O. funding round is off the table as well, the Korea Herald reports. “In light of recent capital market conditions and share price trends, Solidigm determined that it was necessary to reassess whether an IPO would be the most beneficial option for SK hynix and its existing shareholders at this time,” the company said in a statement.
A lot of money was at stake. According to media reports, Solidigm could have listed on the Nasdaq as early as next year, raising $10 billion to $15 billion (about €9 billion to €13 billion) at a valuation of up to $150 billion (about €134 billion).
Headwinds From Seoul
Politics played a part, too. Earlier this week, South Korea’s Financial Supervisory Service and Financial Services Commission said Solidigm fell under new rules against so-called duplicate listings. The rules are meant to stop conglomerates from listing subsidiaries separately and diluting the stakes of existing shareholders, which is exactly what SK Hynix investors had criticized. Lawmakers from both major parties had called for shareholder protections. SK Hynix, however, said the stricter rules were not the direct reason for its retreat.
Solidigm was created in 2021, when SK Hynix acquired Intel’s NAND flash and solid-state drive business. The company is based in California but so far manufactures only in Dalian, China. SK Hynix had wanted to use the I.P.O. proceeds to finance a first plant on the U.S. East Coast, bringing it closer to big American tech companies and their hunger for storage in A.I. data centers. The decision does not change Solidigm’s growth prospects or investment needs, SK Hynix said, adding that it would explore other financing options, including direct investment.
Chip Stocks in Free Fall
The retreat comes in the middle of a steep selloff in tech and chip stocks. On Thursday, the Nasdaq Composite fell 2.6 percent, and the Philadelphia Semiconductor Index plunged 6.7 percent. The trigger was growing doubt about whether the billions poured into A.I. infrastructure will ever pay off, fueled by Meta’s quarterly results, in which A.I. spending ate into cash flow. Just last week, A.I. stocks had already taken a beating.
The selling continued in Asia on Friday: South Korea’s Kospi fell as much as 4 percent at one point, and Japan’s Nikkei 225 lost 2 percent. SK Hynix shares initially dropped as much as 4 percent after the announcement before turning positive later in the session. “This is no longer simply a market punishing highly leveraged AI companies with questionable funding economics,” Chris Weston, head of research at the broker Pepperstone, wrote in a note cited by Business Insider. Investors were cutting exposure across the A.I. sector, he added, including companies with stronger balance sheets and established earnings.
SK Hynix has been one of the biggest beneficiaries of the A.I. boom thanks to its lead in high-bandwidth memory, a crucial component of Nvidia’s A.I. chips. The company briefly joined the trillion-dollar club this year and in July raised $26.5 billion (about €23.6 billion) through a Nasdaq listing of its depositary receipts, one of the largest share offerings in history.
Rivals Feel the Pain
In NAND memory and solid-state drives, Solidigm competes mainly with Samsung, Micron, Kioxia and Sandisk, and their share prices show why the timing for an I.P.O. could hardly be worse. Sandisk is trading about 40 percent below its June peak, according to the Korea Herald. Micron lost 6.3 percent on Thursday, and Samsung Electronics fell as much as 3 percent on Friday. That would have made Solidigm’s hoped-for valuation hard to reach.
The I.P.O. Market Freezes Up
SK Hynix is not alone. Firmus, an Australian data center operator backed by Nvidia, recently pulled its stock listing, which had targeted a valuation of about $30 billion. Firmus now plans to raise money privately. The Finnish smart ring maker Oura has put its U.S. I.P.O. on hold, despite what it described as strong investor demand. And companies that do make it to the market are in for a roller coaster ride: South Korean A.I. cloud company Elice plunged as much as 32 percent in its Kosdaq debut on Tuesday, even though its retail tranche was more than 400 times oversubscribed. The stock rebounded 30 percent the following day.
According to RBC Capital Markets, the dollar volume of global I.P.O. filings fell 33 percent in September from a year earlier. Wall Street was already in an I.P.O. drought at the start of October, with many candidates waiting for Anthropic’s listing. Mr. Weston expects the selling pressure to persist: In a falling market, sellers need no fresh catalyst, because deteriorating prices themselves encourage more selling.
Overdone Panic?
Not everyone shares the pessimism. Analysts at Bank of America said last week that the selloff in memory chip stocks looked overdone and did not reflect the health of the memory business. JPMorgan likewise saw the pullback as a potential buying opportunity in the medium term. Their argument: Demand for memory in A.I. data centers remains strong, and memory chips are currently among the biggest bottlenecks in building out A.I. infrastructure.
