A “hurricane” has swept through the global artificial intelligence (AI) trade, leaving a trail of significant losses and prompting a defensive shift among investors on the Australian sharemarket. The previously booming AI sector has entered a “danger zone,” with high-profile initial public offerings (IPOs) being pulled and established companies facing steep valuation adjustments. Fund managers are now seeking safer ground in traditional sectors like defence and insurance, building cash reserves, or cautiously eyeing beaten-down retail stocks for value, as market volatility surges.
The turbulence escalated this month when high-profile neocloud company Firmus Technologies, which typically offers advanced cloud computing services, withdrew its ASX debut after investors rejected its $44 billion valuation. This presaged a broader global hit, including data centre operator AirTrunk postponing a $4.4 billion listing in Singapore. Locally, data centre operator NextDC, which provides infrastructure for storing and processing digital information, had $3 billion wiped from its value and saw shares drop 40 per cent to a nine-year low after delaying expansion. Further pressure emerged from Facebook owner Meta’s plans to raise hundreds of billions for AI investments, triggering a 7 per cent stock fall and wider market panic.
The ripple effects have been acutely felt across the ASX. Construction materials group Maas Group saw its share price plunge 50 per cent due to significant exposure to Firmus. Electrical contractors SKS Technologies and Southern Cross Electrical, both clients of NextDC, are down 50 per cent and 33 per cent respectively. Engineering and maintenance business Tasmea also dropped 25 per cent. In response, fund managers are pivoting; Ray David from Airlie Funds Management is bullish on the country’s largest insurer, Insurance Australia Group, while Jun Bei Liu of Ten Cap favours defensive plays like lottery company Lottery Corporation and defence company Codan, which supplies radio frequency components to drone manufacturers. Others are scouting undervalued retail opportunities.
