RPT-BREAKINGVIEWS-IPO trio unleashes undiscerning AI zeal

By Robert Cyran

NEW YORK, May 12 (Reuters Breakingviews) - The rising AI tide is lifting nearly all supply boats. A trio of initial public offerings slated for this week tell the tale. Chipmaker Cerebras Systems, geothermal power producer Fervo Energy and Blackstone Digital Infrastructure Trust, none of which have built a fully proven business just yet, are attracting strong interest from investors. Two of them already upsized their deals. Such undifferentiated zeal for speculative machine-learning ventures is a worrying sign.

All three, which are seeking to raise more than $8 billion combined, have solid potential. Cerebras specializes in designing large semiconductors, with its flagship processor using 900,000 cores to perform calculations and 44 gigabytes of memory on a piece of silicon. They access data faster, solving a bottleneck in running trained AI systems that provides an edge against Nvidia NVDA.O. Revenue grew 75% last year to more than $500 million.

Blackstone’s BX.N real estate venture wants to buy new data centers in markets like Virginia, and lease them to giant tech companies. With customers shouldering nearly all the operating costs and rent increases, risk is minimized. A roughly 6% gross asset yield sounds tempting.

Fervo drills rock using hot, pressurized water that produces electricity on demand without fossil fuels. A trial plant cost $7,000 per kilowatt to build, cheaper than new nuclear. Boss Tim Latimer expects that repetition and drilling efficiencies will lower it to $3,000, roughly on par with new gas turbines. Combined with deeper wells, this could provide more power than needed in large parts of the United States. At a projected $8 billion valuation, it would be worth a third less than atomic fission dreamer Oklo OKLO.N.

What if the surging AI waters recede, though? Cerebras recorded an operating loss last year. With an IPO imputing a $35 billion market capitalization – using only shares outstanding, while ignoring hefty employee option grants and warrants to OpenAI and Amazon.com AMZN.O – it would be valued, on a multiple of 2025 revenue, three times higher than Nvidia. Blackstone’s real estate investment trust is a shell that hasn’t bought anything yet. Fervo's targeted cost reductions might not materialize.

If AI demand proves hollow, Cerebras would probably suffer. Blackstone could scoop up facilities at a discount, but already-purchased ones might take a hit. As for Fervo, data centers account for only half the projected increase in U.S. electricity usage, and geothermal can strengthen a solar-dependent system while decarbonizing. Capitalizing on the AI trend without being completely tethered to it gives Fervo the best chance to float even if if the tide goes out.

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CONTEXT NEWS

Cerebras Systems, a maker of semiconductors used in artificial intelligence, said on May 11 that it would seek to sell 30 million Class A shares at between $150 and $160 apiece in its initial public offering compared to its previous plan of 28 million shares at $115 to $125. At the top end of the range, the company would raise roughly $4.8 billion.

Morgan Stanley, Citigroup, Barclays and UBS are the lead advisers on the IPO.

Fervo Energy, which develops advanced geothermal power projects, said on May 11 that it plans to sell 70 million shares at $25 to $26 each, after initially proposing 55.6 million shares at between $21 and $24. At the top end of the range, the company would raise about $1.8 billion and be valued at $7.4 billion.

JPMorgan, BofA, RBC Capital Markets and Barclays are the joint lead bookrunning managers.

Blackstone Digital Infrastructure Trust, which intends to buy data centers rented to investment-grade hyperscalers, said on May 4 that it was offering 87.5 million shares at $20 each. IPO investors will receive bonus shares representing 1% of their investment.

Goldman Sachs, Citigroup, Morgan Stanley, Barclays, BofA, Deutsche Bank, JPMorgan, RBC Capital Markets and Wells Fargo are joint lead bookrunning managers.