The Firmus Float and the Case for ASX Small Cap Stocks

NextDC, the ASX's largest listed data centre operator, is trading close to $11.00, roughly the same level it sat at three years ago, and around 60 per cent below its consensus price target. Firmus Technologies is preparing to list next month at a reported valuation near $50bn.

That gap between an established operator sitting at a steep discount and a private company chasing a record valuation is the clearest signal in this cycle of where the market believes value actually sits, and it is not obviously with Firmus.

Firmus Is Betting Retail Investors Repeat A Trade That Has Not Finished Playing Out

Firmus was valued at $15bn in July. Speculation now points to a market capitalisation near $50bn after a $7bn capital raise, a valuation built substantially on retail appetite echoing the SpaceX float two months ago, where 40,000 Australian investors took up stock in a single offshore venture.

Emanuel Datt, Chief Investment Officer at Datt Capital, called the earlier $15bn figure "heroic."

"I think it might have captured the zeitgeist, but I also think they had to raise a lot of capital privately and now there is a fair amount of emphasis on getting this IPO over the line."

A valuation that depends on retail sentiment repeating itself is a different proposition to one supported by earnings, contracted revenue, or asset backing. Investors weighing the float are effectively underwriting sentiment, not the underlying business.

The Discount Sits Deepest In The Small Cap Names Building The Infrastructure

Every ASX-listed data centre stock trades below its consensus price target, but the size of that discount and the reason for it differ by company. NextDC's discount reflects scale and platform risk priced against a large, well-covered operator. Further down the market cap spectrum, and against a backdrop where capital is already rotating out of large-cap technology momentum and into ASX small caps, the picture changes.

Southern Cross Electrical, an electrical engineering contractor with data centre work expected to represent around a third of future revenue, trades on a 30 per cent discount to broker fair value. Maas Group, which has pivoted meaningfully into data centres and holds contracts with Firmus directly, trades on a similar 30 per cent discount after its stock fell 20 per cent last year on the pivot announcement.

These are companies earning revenue from the build-out today, priced at a discount that has not yet caught up to the demand already contracted.

Emanuel's view is that this is where capital should be directed instead.

"Because we are at that point where we have seen a lot of delivery plans announced, my question is: what's next? Where does the demand come from? So as an investor I would rather invest in the service providers here."

Execution Risk Sits With The Platform, Not With The Companies Servicing It

A single-operator float the size of Firmus concentrates risk in ways a diversified set of service exposures does not. Delivery depends on government cooperation on planning and energy approvals, and on projects proceeding on the timeline the valuation assumes. Value rarely accrues evenly across an infrastructure build-out, and the companies carrying the delivery risk are not always the ones capturing the reward.

Datt Capital points to the group's proposed Batam Island facility in Indonesia as an example of the kind of frictional risk that gets underweighted in a hype-driven valuation.

"We're looking at the frictional and tangible elements of data centre delivery. For example, the latest deal announced for their proposed Batam Island facility requires an enormous infrastructure investment by the local authorities to provide sufficient power to the facility."

Externalities of this kind, government approvals, grid capacity, community pushback, do not show up in a valuation multiple, but they determine whether the delivery plans behind that multiple actually happen on schedule.

Portfolio Relevance

This dynamic is consistent with why the Datt Small Companies Fund is positioned outside the ASX 100, in businesses with contracted earnings and a market discount unrelated to the underlying fundamentals. The fund's primary research process prioritises identifying where demand is already proven over positioning for a valuation built on retail momentum.

Conclusion

Firmus is asking investors to bet on a single company at a record valuation built substantially on sentiment. The ASX market is already showing where the comparable value sits: in service providers with contracted data centre revenue, trading at discounts the broader AI narrative has not yet reached.

To learn more about small cap opportunities in the data centre build-out, visit our Small Companies Fund page or contact our Distribution Manager, Daniel Liptak, at 0419 004 524 or by email at daniel@datt.com.au.