The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Robert Cyran

NEW YORK, Oct 1 (Reuters Breakingviews) - When the ducks quack, feed them. The old Wall Street saying states that, when investors are hungry for initial public offerings, it's time to stuff them with whatever is handy. Today, their appetite for anything that smells of artificial intelligence data centers and the associated electricity seems nearly limitless. So UBS, Evercore and other banks have teamed up with Rick Perry, the former head of the U.S. Department of Energy, to deliver Fermi, a company with no revenue but over 15,000 acres of land in Texas and dreams of building nuclear-powered facilities. By around noon on Wednesday, the newly listed firm was worth over $15 billion.

Fermi, which was only founded in January, has a few things going for its plan to eventually build 11 gigawatts of capacity - five times the maximum power generated by the Hoover Dam. Total AI power demand is set to grow from 55 gigawatts in 2023 to 219 gigawatts by 2030, according to McKinsey, implying some $5 trillion of infrastructure investment. Only a fraction of this is currently being built. Even the big five U.S. tech giants, which are cranking up their combined capital expenditure to around $400 billion this year, cannot hit that target without help. Moreover, Fermi’s site in Amarillo, Texas, has access to plentiful gas, and Perry’s connections in the state where he was once governor might help secure both backlogged generators and permission to eventually build nuclear power plants. Naming the site “Project Matador: The President Donald J. Trump Advanced Energy and Intelligence Campus" will only boost its appeal.

If everything goes right, the project could mint money. The company provides some illustrative math, which it stresses is not a corporate projection, spelling out how things may go assuming both finished projects and eager clients. A lease might generate $1.5 billion annually for each gigawatt of gross capacity and power purchase agreements. Operating expenses might be $500 million, implying a cool $1 billion of net operating income per gigawatt. Rival operator Digital Realty Trust is valued at 12 times expected revenue for the next 12 months. So if Fermi actually produces 11 gigawatts of capacity and rents it out, the whole firm, including debt, might eventually be worth some $200 billion.

This speculative approach carries some huge risks. Most data center builders have a far more cautious style, locking customers into long-term agreements before breaking ground. The current data center frenzy has a strong whiff of overinvestment. And nuclear facilities are prone to spectacular cost overruns and multi-year delays. If demand is less than expected, or clients don’t show up, today’s ducks might end up starving.

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CONTEXT NEWS

Stock in Fermi, a pre-revenue company that plans to develop a 15,000-acre site in Amarillo, Texas into one of the largest nuclear, natural gas and solar-powered data centers in the world, started trading on Nasdaq on October 1.

The up to 15 million square foot integrated power plant and data center on the Texas Tech University campus is officially called “Project Matador: The President Donald J. Trump Advanced Energy and Intelligence Campus".

The company was co-founded by Rick Perry, who was governor of Texas for 15 years, and the Secretary of U.S. Department of Energy from 2017 to 2019.

The company, which was founded in January, sold 32.5 million shares priced at $21 in an upsized offering. At the offering price, the company had a market capitalization of $12.6 billion, assuming the underwriters exercise their option to buy more shares.

Fermi shares started trading at $25 on the morning of October 1.

(Editing by Peter Thal Larsen; Production by Maya Nandhini)

((For previous columns by the author, Reuters customers can click on CYRAN/robert.cyran@thomsonreuters.com; Reuters Messaging: robert.cyran.thomsonreuters.com@reuters.net))