AI Campus Developer Fermi Drops After Tenant Ends Agreement
TL;DR
Fermi Inc.'s stock plummeted 46% after a tenant canceled a $150 million agreement for its AI campus, raising concerns about the AI-power boom's sustainability. The company, valued at $19 billion in October, has lost over two-thirds of its value amid investor doubts over data-center demand and financing.
Key Takeaways
- •Fermi Inc. plunged 46% after a tenant terminated a $150 million agreement for its AI campus in West Texas, with no funds drawn under the deal.
- •The cancellation adds to worries about a potential bubble in the AI-power boom, dragging down shares of companies promising to power data centers.
- •Fermi, which doesn't yet generate revenue, has lost more than two-thirds of its value since October, valued at $19 billion then.
- •Investor uncertainty grows over securing long-term demand for massive power projects aimed at AI data centers and West Texas's role as a hub.
- •Fermi continues negotiations with the first tenant and others, plans to deliver 1.1 gigawatts by end of next year, and aims to build four nuclear reactors long-term.
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Fermi Inc. plunged as much as 46% on Friday after the power developer, co-founded by former Texas governor Rick Perry, said a tenant terminated a $150 million agreement tied to its proposed artificial intelligence campus in West Texas.
The company said its first investment-grade tenant canceled a deal from Nov. 4 that would have provided as much as $150 million to fund construction costs, according to a filing Friday. No funds had been drawn under that agreement.
Fermi’s disclosure adds to worries of a potential bubble in the AI-power boom. Such concerns have dragged in recent weeks on the shares of several companies that promised to power data centers. The company, which doesn’t yet generate revenues, was valued at $19 billion in October and has lost more than two-thirds of its value in two months.
Fermi had mostly enjoyed a sharp rise from its inception earlier this year thanks to its lofty ambition to build the world’s biggest private grid for a data-center campus. Reaching its goal would use more than twice the power of New York City.
“This was kind of the darling that came out in the hype of the AI power market and right after the IPO there were a couple of cracks that started to appear: Are we actually overbuilding these things and how are these things being financed? The hype needs to shift into actual tangible results,” said Timm Schneider, an energy analyst and founder of The Schneider Capital Group.
Fermi did not immediately respond to requests for comment.
Read more: AI Hype Turns on Power Companies as Data-Center Deals Fall Short
There’s growing investor uncertainty about whether developers can secure firm, long-term demand for massive new power projects aimed at serving AI data centers, and whether West Texas will emerge as a major hub for the energy-intensive buildout. Companies across the sector are racing to add generation, but markets are increasingly focused on which projects can translate early interest into binding contracts.
Stocks tied the AI boom were broadly down Friday after a string of bad news. BroadCom Inc., a player in the market for AI computing revenue, disappointed investors with its sales outlook while Oracle pushed back the completion date for some of the data centers its developing for OpenAI. Shares of some of the largest independent power producers, power-equipment makers and the developers of data center infrastructure also dropped.
Fermi continues to hold on to the Texas Tech land lease it had signed for its campus, dubbed Project Matador, because a previous letter of intent between the developer and the potential tenant is still in place, Cantor Fitzgeral analyst Derek Soderberg said in a note Friday.
Fermi and the first tenant continue to negotiate the terms of a lease agreement tied to a letter of intent signed in September, the company said in its filing. That agreement included an exclusivity provision that expired Dec. 9. Since then, Fermi has begun discussions with several other potential electricity customers and remains on track to begin power delivery in 2026.
The Texas developer said that the first tenant had tried to make last minute pricing changes that were deemed unacceptable, and negotiations are underway with two other potential tenants on terms, said Soderberg, who wrote Fermi plans to bring provide about 1.1 gigawatts of new power by the end of next year. That is the equivalent of a large nuclear reactor.
Longer term, Fermi plans to build four large nuclear reactors and has likened the race to power AI to the Manhattan Project from World War II to build atomic bombs. The company is facing intensifying competition from long-standing power developers to private equity giants, all aiming to win over the same technology giants.