Why this ASX Nvidia partner has just been placed in a trading halt

A tiny ASX stock with a big Nvidia Corp (NASDAQ: NVDA) partnership has entered a trading halt today.

Pentanet Ltd (ASX: 5GG) shares are locked at 8.2 cents a pop as investors await further information. The share halt comes amid a busy week for the telecommunications and gaming service provider. Yesterday, the company announced further work alongside Nvidia to expand its cloud offerings.

Nvidia has been the poster child for artificial intelligence (AI), rallying 85% this year as tech companies squabble to get the latest best-in-class AI hardware. Amid the excitement, companies with any association have attracted much attention.

More than 275 million shares traded hands between 15 and 19 March. For context, the prior three days saw approximately 181,000 shares traded. That’s more than a thousand-fold increase in trading volume.

So what’s going on now?

Pentanet put on ice

Before today’s market opened, Pentanet requested its shares be paused pending an announcement.

According to the request, the announcement will be in relation to a placement. In other words, Pentanet will be rattling the can for additional funding. Little more is known at this point in time.

The need for more capital makes sense when looking at the company’s balance sheet and spending.

As of 31 December 2023, Pentanet held $6.78 million in cash and $2.44 million in debt. Yet, the company recorded $7.4 million in negative free cash flow for the 12 months ending 31 December 2023. It’s safe to say the finances aren’t as pretty as Nvidia’s.

If cash flows over the next year closely resemble the last year, cash would quickly become a scarce resource for this ASX telecom stock.

The last time Pentanet raised capital was in April 2023 — securing $6.1 million via a placement and an additional $330,000 through a share purchase plan.

Nvidia hardware doesn’t come cheap

While it’s yet to be confirmed what Pentanet intends to use any raised capital for, the proximity to its recent Nvidia announcement is notable.

As per yesterday’s announcement, the company has upgraded to Nvidia’s L40 graphics processing units (GPUs) to unlock next-level computing capability. According to online sources, one L40 GPU can come with a $23,000 price tag.

On 15 March, Pentanet highlighted that its GeForce NOW partner agreement with Nvidia now recognised New Zealand as a ‘serviceable territory’. Potentially, the ASX company will be looking for funds to expand its offering across the ditch.

The post Why this ASX Nvidia partner has just been placed in a trading halt appeared first on The Motley Fool Australia.

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• Stock-split watch: Is Nvidia next?
• Guess which ASX tech stock is exploding 120% on a new deal with Nvidia

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Nvidia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Pentanet. The Motley Fool Australia has recommended Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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