Fermi America $FRMI, why I think it's the most undervalued play in the market
FRMI: the most hated AI infrastructure stock on the market reports Thursday, and the 90-day tenant clock runs out the same week
Been holding this one through the entire dumpster fire so figured I'd write it up before earnings on Thursday (Aug 13). Not financial advice, I'm just a guy who reads SEC filings for fun.
**What Fermi actually is:**
Fermi America (FRMI) is building Project Matador, an 11 GW private power and data center campus in Amarillo, Texas, in partnership with the Texas Tech University System. Co-founded by Rick Perry (yes, that one). The pitch is simple: AI datacenters are power constrained, grid interconnection queues are years long, so Fermi builds its own behind-the-meter gas and eventually nuclear powered campus and leases capacity to hyperscalers. It's structured as a REIT, dual listed on Nasdaq and the LSE.
The stock IPO'd hot, touched $37, and now trades in the single digits with a market cap around $4B. Down roughly 80% from the high. So what happened?
**## Why it got smoked (and why most of it is old news)**
1. **The anchor tenant walked**. In December the first tenant terminated a $150M construction funding agreement and the stock dropped about a third in a day. There's a class action over it. This is the original sin and it's why nobody trusts the story.
2. **They fired the CEO**. Co-founder Toby Neugebauer got removed as CEO and from the board in April. He then launched a proxy war to replace the board and force a strategic review. Months of governance chaos, a director resignation, lawsuits, the works.
3. **Dilution**. They raised $431M in 5% convertible notes in July and the stock dropped double digits on the announcement. Cash burn is real, this thing is pre-revenue and building gigawatt scale infrastructure.
**Why I think it's mispriced now:**
**The governance war is over.** Neugebauer suspended his proxy campaign in early July after ISS sided with the board. The company then locked in a full permanent exec team on July 20: new CFO, COO, CCO and general counsel, all on five year contracts. Notably the chief commercial officer's comp package includes incentives tied to getting tenants signed. The overhang that kept institutions away for months is basically resolved.
**The assets are real and showing up**. Three Siemens SGT6-5000F turbines (780 MW combined) physically arrived at the Port of Houston. TCEQ gave preliminary approval for 6 GW of gas generation, which would make Matador one of the largest gas power projects in the country. TSK signed on for early works engineering on phase two. This is no longer a rendering on a slide deck.
**The tenant**. After the anchor tenant fiasco, management pivoted to a multi-tenant strategy ("Fermi 2.0") and put themselves on a self-imposed 90-day clock to sign one. That clock started mid-May, which means it expires basically the same week as Thursday's earnings call. Here's the part I find interesting: Neugebauer, the guy they fired, the largest individual shareholder, the man with every incentive to say the board is failing, put out a letter saying he has high confidence a tenant or JV announcement is close because the deal team was already in the contracting phase before he left. When the ousted founder is confirming the bull case mid proxy-fight, that's not nothing. There have also been reports floating around about OpenAI potentially leasing Matador capacity. Rumor, treat it as such.
**The setup**. Short interest is around 13.5% of float. Mizuho cut their target to $11 but kept Outperform and said they still expect a tenant signed within three months. Stifel is at $17. Stock trades at $6-7. If a tenant lands on or around earnings, the repricing is violent because the entire bear case is "they can't sign anyone."
**The bear case**.
No tenant Thursday and this probably bleeds lower. Burn rate is ugly, more dilution is likely, and the class action isn't going away. This is a binary-ish event trade on top of a long-term power scarcity thesis.
But the way I see it: market is pricing this like the tenant never shows up, while the company, the analysts covering it, AND the guy who got fired are all saying the same thing. Somebody's wrong.
Positions: shares, no options, cost basis I don't want to talk about.