K-Fabless AI Chip Firms Face Accounting Paradox: Massive Losses Mask Rising Valuations

South Korea’s AI semiconductor startups recorded hundreds of billions to over a trillion won in net losses in 2025, but this represents an accounting artifact rather than operational failure. The losses stem from the revaluation of convertible preferred shares (RCPS) under K-IFRS accounting standards, which reflects rising company valuations rather than cash burn or debt accumulation, according to the companies’ audited financial reports released on April 17, 2026.

The RCPS Revaluation Paradox

Rebellion and Furiosa AI reported net losses of 206.9 billion won and 152.2 billion won respectively, driven entirely by “derivative asset revaluation losses.” Under K-IFRS, preferred shares held by investors are revalued to fair value annually; as company valuations rise, the book value of these shares increases, creating large accounting losses despite no actual cash outflow.

Furiosa AI’s total debt stands at 567.1 billion won, of which 508.4 billion won relates to RCPS. Rebellion carries 767.1 billion won in derivative liabilities. A Rebellion representative stated: “We currently have no actual borrowed debt. As we continue raising investment and company value rises, the book value of RCPS increases on the balance sheet, but this is purely an accounting environment unrelated to actual financial health.” The representative added that upon IPO, preferred shares will convert to common shares, immediately resolving the debt on the balance sheet.

A Furiosa AI representative explained: “As company value rises, the option value granted to investors increases, which expands accounting liabilities. We record larger debt because business is performing well—this is not economic debt.” According to the auditor’s report, Furiosa AI raised an additional 46.6 billion won through RCPS issuance by March 2026 to shore up liquidity ahead of a potential IPO.

Divergent Cash Positions

Beyond accounting figures, actual operating cash reveals material differences. Rebellion secured 315.9 billion won in combined liquid assets and short-term financial instruments through its ninth RCPS issuance in 2025. After spending approximately 120 billion won annually on R&D, the company has sufficient cash runway to operate for over two years without revenue.

Furiosa AI faces tighter cash flow. Available liquidity fell to 1.7 billion won by year-end 2025 as production of its second-generation “Renegade” chip and development of its third-generation chip consumed substantial cash reserves. The company moved quickly to secure a liquidity bridge, raising 46.6 billion won through additional RCPS issuance by March 2026 to fund operations through a potential IPO.

Hyperscale and DeepX avoided similar capital impairment. Hyperscale continues to apply K-GAAP (general accounting standards) rather than K-IFRS, treating RCPS as equity rather than debt. DeepX has not accumulated comparable RCPS revaluation losses due to lower valuation multiples, avoiding complete capital impairment.

Beyond Accounting: The Real Competition

The 2025 audited reports signal that South Korea’s AI semiconductor industry has moved beyond technology demonstration into commercial deployment and self-sufficiency validation. While accounting liabilities will convert to equity upon IPO, resolving balance-sheet risk, the capital market’s real assessment begins now.

Investors’ core question extends beyond financial survival duration to actual large-scale customer shipments. Companies must move beyond government projects and domestic telecom initial revenue to prove global customer validation, rigorous performance verification, and production-scale delivery.

An industry representative stated: “Converting preferred shares to common shares during IPO is only the minimum requirement for listing. K-Fabless real valuation must ultimately be proven through meaningful purchase contracts with actual global customers—not accumulated investment, but demonstrated customer confidence.”

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