South Korean firm's debut plunge adds to investor concerns about AI spending

A 32% drop ‌in ​shares of South Korea's Elice Group on Tuesday renewed investor concerns about the sustainability and the payoff cycle for the vast amount of capital pouring into the AI buildout amid growing scrutiny of company valuations. The plunge in shares of the provider of AI cloud services as well as AI-based education ‌and business software made it the worst debut ever in South Korea for a company that raised more than $100 million in an IPO, according to Dealogic data.

Elice raised 201.1 billion won ($150 million) in its IPO, and said that it planned to spend most of the proceeds on launching portable modular data centres and related infrastructure. The stock's poor first day of trading contributed to renewed weakness in AI-linked stocks on Wall ‌Street on Tuesday, with shares in neocloud firms including CoreWeave and Nebius Group both falling more than 5%.

Elice's slide had earlier weighed on the broader South Korean market, a poster child for ‌global AI trade and investor sentiment, with the benchmark KOSPI falling 3.73% to its lowest closing level since April 7. After dominating market gains, AI companies are now facing more sceptical investors as concerns over spending, competition and profitability eclipse optimism about AI's long-term potential.

Elevated inflation has also pushed interest rates higher, meaning the AI sector's debt will become more expensive to repay. S&P Global estimates the world's biggest tech firms are likely to have more AI-linked liabilities than currently known. Elice's IPO was priced ⁠on October ​6, before the recent selloff in AI-related stocks.

"The conclusion is ⁠simple: the timing is bad. The latest chip selloff has bruised investors' appetite, and the poor debut is certainly a warning for upcoming AI listings," said Swissquote analyst Ipek Ozkardeskaya. "The good news is that AI headlines could change from one minute ⁠to the next. One great development and the rally could be back," she said, adding the sector's upside potential continues to compete with the downside risks from high valuations.

INCREASING SCRUTINY OF AI INFRA DEALS Elice's shares closed ​at 60,500 won compared with its IPO pricing of 90,500 won, leaving it valued at roughly 674 billion won ($508 million). The IPO drew institutional orders worth 388.84 times the shares available ⁠in the offering.

Its poor debut came after other AI companies dropped or suspended deals in recent days, as investors reassess whether the firms racing to build the infrastructure underpinning AI can generate returns that justify soaring spending. The IPO of Australia's Firmus, which ⁠is ​backed by Nvidia , was shelved, while Blackstone-backed AirTrunk postponed a Singapore listing, and SB Energy, a unit of SoftBank , delayed its US share sale.

Investors are increasingly scrutinising AI infrastructure and data centre deals, said Ke Yan, head of research at Singapore-based Shenton Research, and were now focused on those firms' customer contracts and committed revenue figures. "Everyone is not sure how much demand for AI ⁠there will be and it is hard to estimate current demand," said Kim Hak-joon, an analyst at Seoul-based Kiwoom Securities.

Elice's revenue for the first half of the year tripled to 34 billion won ⁠and it swung to an operating profit of ⁠10 billion won compared with a 3.5 billion won loss for the same period a year earlier. The company's largest shareholder is chief executive and co-founder Kim Jae Won, who holds 34.6%, ahead of Silicon Valley investor Altos with 24.45% and the Korea Development Bank, which owns 6.45%, according to company filings.

($1 = ‌1,327.2800 won)