Nvidia customer’s valuation voodoo tests AI mania
The author is a Reuters Breakingviews columnist. The opinions expressed are her own. Refiles to fix typo in paragraph two.
By Yawen Chen
LONDON, July 2 (Reuters Breakingviews) -Customers of Nvidia NVDA.O are trying to steal some of the Californian chip giant’s valuation magic. That’s one way to understand the news that Germany’s $1.4 billion Northern Data NB2.DE may re-list part of its business in the United States with a possible $10 billion to $16 billion target valuation, based on banker pitches as reported by Bloomberg. If investors go along with that price tag, it’s a sign that artificial intelligence mania has reached new heights.
The Frankfurt-listed company has a knack for getting hold of Nvidia’s highly sought-after chips, partly because of its history as a cryptocurrency miner. These days, the best way to monetise super powerful chips is not to perform calculations in return for bitcoin or ether, but to rent out the computing power to AI-hungry companies. Northern Data’s new strategy, therefore, is to get its Taiga Cloud unit up to 75% of total revenue next year from 20% last year, while pushing crypto down to 20% of sales compared with 80% in 2023.
If that works, the company might hope for an AI-worthy multiple as a reward. Northern Data’s privately held U.S. peer CoreWeave, for example, recently secured a $19 billion valuation. It has about twice as many high-end Nvidia graphics processing units (GPUs) as the German group. The implied read-across may be that Northern Data’s relevant cloud unit alone should be worth just under $10 billion. The theory may be that a Nasdaq initial public offering for the AI bits of the group may help to juice that valuation even further.
There are several problems with that line of thinking. The first is that investors already implicitly attach a value for the divisions in question, and it’s nowhere near the mooted U.S. IPO price tag. Even after a roughly 20% surge on Tuesday following the Bloomberg report, Northern Data’s market value was about $1.7 billion. Berenberg analysts, which initiated their coverage of the stock in April with a “buy” rating, estimated that Taiga Cloud is worth about $2 billion, based on a discounted cash flow analysis. It’s unclear why that number should be so much higher purely by virtue of having a Nasdaq listing.
Another question is the sustainability of Northern Data’s unique edge, which consists of its access to Nvidia chips. Its AI pivot is enabled by the fact that it got access to thousands of Nvidia H100 Tensor Core GPUs last year, partly through the acquisition of a business called Damoon from stablecoin specialist Tether. That was a good deal, but investors might suspect it was a one-off. The two units that Northern Data may IPO will generate about $470 million of EBITDA in 2027, Berenberg analysts reckon. So a $16 billion enterprise value would imply a heady 34 times multiple. That sounds more like valuation voodoo than financial reality.
Follow @ywchen1 on X
CONTEXT NEWS
Northern Data is mulling an initial public offering of its combined artificial intelligence and data centre businesses on the Nasdaq as early as in the first half of next year, Bloomberg reported on July 1 citing people familiar with the matter.
The company has asked several financial advisers to pitch for a role on the float and could mandate lead banks within the coming months, the report said.
Banks have suggested valuations for the business that range from about $10 billion to $16 billion, the report also said.
Separately, Northern Data said it has purchased Nvidia’s latest H200 graphics processing units (GPUs) through a newly established partnership with IT group Supermicro, according to a statement on July 1.
The company said that its cloud computing unit, Taiga Cloud, will be the first in Europe to offer access to the H200 GPU hardware, with delivery and deployment scheduled for the fourth quarter of 2024.
Northern Data shares were up 20% to 30 euros as of 0918 GMT on July 2.
Graphic: Northern Data's fluctuating market capitalisation https://reut.rs/45Rqsmc
Editing by Liam Proud and Oliver Taslic
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