(Bloomberg Opinion) — The Fermi Paradox asks why, given the vastness of the universe, there is no hard evidence of aliens. The Fermi Inc. paradox asks why, given seemingly insatiable demand from hyperscalers for electricity, former Energy Secretary Rick Perry’s AI-energy firm hasn’t obtained a hard power contract from said hyperscalers.
The dissonance has now become unbearable. With the stock having dropped 69% since its initial public offering last September, Fermi had itself quite the weekend. Chief Executive Officer, co-founder and major shareholder Toby Neugebauer left abruptly. Then Chief Finance Officer Miles Everson followed him out the door. By Monday morning, the company was announcing a new “office of the CEO” comprising a board member and the chief operating officer. Details of a new interim CFO are due later this week.
The stock fell another 20%, which means a dollar and change at this point. Fermi’s turmoil is an alarm bell for the overhyped hyperscaler thesis juicing power forecasts and valuations across the sector.
The weekend’s C-suite revolution was all gamely spun as “Fermi 2.0.” But, barely six months on from its splashy stock-market debut, a company updating itself faster than a Microsoft software patch is not a good sign. The fact that Fermi is announcing a search for an “interim” CFO also lends the proceedings an unhelpful air of improvisation. The appointment of Jeffrey Stein, co-founder of restructuring boutique Breakpoint Partners and boasting “more than 30 years of experience in the distressed and special situations market,” to the board is also a thing no investor likes to hear on a Monday morning.
Fermi had “all the trappings of a bandwagon IPO,” as I wrote last October. Perry’s name as co-founder drew attention, as did that of Neugebauer, a private equity tycoon and Republican donor. The company had secured a lease on a strategically located site in the Texas panhandle, as well as a gas-supply contract and orders for hard-to-obtain gas turbines. This, as well as Fermi’s touted ambition to build nuclear reactors, made the site near Amarillo perfect, seemingly, for any hyperscaler wanting to get multi-gigawatt datacenters up and running fast. Ballooning forecasts for datacenter power demand, as well as a tiny free float, juiced Fermi’s valuation to a peak of more than $19 billion.
That now hovers around $3 billion. The scene was set on a defensive earnings call at the end of last month. Investors had become antsy at the continuing lack of an anchor tenant, especially after a Business Insider report in December claiming Amazon.com Inc. had pulled out of a potential deal, citing Neugebauer himself as the source. (Fermi subsequently denied that either the company or Neugebauer had identified the prospective tenant; Business Insider stood by its reporting).
Neugebauer and Everson spent much of the call talking up prospects for a tenant agreement as well as listing funding sources, much of it non-recourse equipment financing credit. Fermi’s combined capital expenditure over 2026 and 2027 is forecast to be $6.8 billion, nine times forecasted Ebitda and more than double the current market cap. At one point, Neugebauer said the company had a standing call every day at 4 pm Eastern to review Fermi’s cash position; which may have been intended to reassure but rather raised the question of why executives felt the need to do that every day. Certainly, the now-former CEO and CFO did not turn around sentiment.
There’s a pretty standard cautionary tale about hyped-up IPOs here. Fair play to whomever came up with “Fermi 2.0,” but its already-thin powers of persuasion are further undermined by the continued, and awkward, presence of Neugebauer and Everson, now both on the board.
That warning spreads far beyond Fermi’s non-insider shareholders, though. The artificial intelligence boom, and its associated dizzying quantities of funding, has stoked a build-it-and-they-will-come mentality in the energy sector. Besides Fermi’s initial stock-price pop, developers of advanced nuclear reactors, most lacking a licensed design, sport meme-like valuations; Oklo Inc., for example, has fallen roughly 60% from its peak last fall and still trades at more than 1,200 times forecasted revenue.
But as Jigar Shah, former head of the Department of Energy’s Loan Programs Office and who now runs advisory firm Multiplier, wrote in a timely thread on X this weekend: “This isn’t a funding problem.” Forecasts of 100 gigawatt-plus expansions in power demand from Silicon Valley executives more used to the infinitely scalable dynamics of software are running into the stubborn physical realities of the grid (along with a growing political backlash). The supply chain, and regulatory process, for power hookups is backed-up and subject to wider groups of stakeholders than just the hyperscalers. Shah estimates around 34 gigawatts of capacity might be added by 2030.
Part of the issue here is that hyperscalers demand a level of reliability that the US power grid will struggle to deliver, necessitating redundancy in the form of on-site or backup generation. Sector and Sovereign Research LLC estimates that datacenters will add 75 gigawatts of peak demand by 2030, the lion’s share of a total increase they forecast at 105 gigawatts. But the need to maintain buffers of spare capacity, both on the grid and off, means the net capacity required would be 182 gigawatts. “The United States has never added 182 GW of dispatchable capacity over a five-year period,” SSR writes.
Fermi is premised on this, essentially offering hyperscalers a short-cut to plugging in. Yet an AI sector seemingly desperate for power, and rich enough to pay up, is strangely hesitant. The more exuberant forecasters of datacenter demand must surely pause in the face of such evidence, or rather lack of it.
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This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Liam Denning is a Bloomberg Opinion columnist covering energy. A former banker, he edited the Wall Street Journal’s Heard on the Street column and wrote the Financial Times’s Lex column.
