Fermi (FRMI): Can It Recover from Setbacks and Deliver on AI Infrastructure Potential?

The AI infrastructure REIT sector is at a pivotal juncture, with demand for data center capacity surging amid the global AI boom. Yet, for Fermi (FRMI), the path forward remains fraught with challenges. A recent 34% stock price drop following the termination of a $150 million tenant agreement for its Project Matador in Texas has cast doubt on its ability to execute its ambitious vision according to Reuters. This article examines Fermi's position in the AI infrastructure REIT sector, evaluates its risk profile relative to peers like Digital Realty and Equinix, and assesses whether its long-term potential can outweigh its current setbacks.

Fermi's Challenges: A Pre-Revenue Play in a High-Stakes Sector

Fermi's struggles stem from its unique business model. Unlike established data center REITs, Fermi is a development-stage company with no revenue and no operational data centers. Its flagship Project Matador-a multi-gigawatt energy and data center campus-remains years from completion, with first tenant revenue expected in 2027 according to research. The recent termination of a key tenant agreement has exacerbated investor skepticism, particularly given Fermi's lack of proven revenue streams and its overinflated valuation.

According to a report by Reuters, the terminated tenant was a critical investor in Project Matador's early phase, and the loss has raised questions about Fermi's ability to secure stable funding according to Reuters. Compounding this, Fermi's third-quarter 2025 earnings revealed an EPS of -$0.84, with discounted cash flow (DCF) valuations suggesting the stock is overvalued at $8.59, far above its fair value estimate of $5.66 per share according to Barchart. The company has raised $2 billion in capital but trades at an $18 billion market cap, creating a structural mismatch that makes it difficult to deliver on investor expectations according to AlphaSense.

According to a report by Reuters, the terminated tenant was a critical investor in Project Matador's early phase, and the loss has raised questions about Fermi's ability to secure stable funding according to Reuters. Compounding this, Fermi's third-quarter 2025 earnings revealed an EPS of -$0.84, with discounted cash flow (DCF) valuations suggesting the stock is overvalued at $8.59, far above its fair value estimate of $5.66 per share according to Barchart. The company has raised $2 billion in capital but trades at an $18 billion market cap, creating a structural mismatch that makes it difficult to deliver on investor expectations according to AlphaSense.

Sector Positioning: AI Infrastructure as a Growth Engine

Despite these challenges, the AI infrastructure REIT sector remains a compelling long-term opportunity. Data center REITs have historically outperformed traditional REITs, driven by the insatiable demand for AI computing power. In 2025, global data center construction reached record levels, with capital deployed in new infrastructure hitting $154 billion in Q3 alone according to JDSupra. Analysts project that enterprise spending on agentic AI will grow from less than $1 billion in 2024 to $51.5 billion by 2028, expanding at a ~150% CAGR according to JDSupra.

Fermi's focus on hybrid energy solutions-combining on-site power generation (natural gas, nuclear) with data center infrastructure-positions it to address regional power shortages that plague traditional REITs. However, this strategy introduces regulatory and execution risks. Unlike Digital Realty and Equinix, which operate in urban areas with existing infrastructure, Fermi must navigate complex permitting processes for nuclear reactors and secure long-term power agreements according to AlphaSense.

Risk Rebalance: Fermi vs. Established Peers

Digital Realty and Equinix, by contrast, are well-positioned to capitalize on the AI infrastructure boom. Digital Realty plans to spend $4–5 billion annually through 2029 to expand its data center footprint according to The Motley Fool, while Equinix has delivered uninterrupted quarterly revenue growth for over 22 years according to The Motley Fool. Both companies benefit from investment-grade credit ratings, diversified tenant bases, and long-term contracts that provide predictable cash flows.

Fermi's risk profile is starkly different.

Its business model hinges on the timely execution of capital-intensive projects, including the deployment of small modular reactors (SMRs) and the development of energy infrastructure. Execution risks include supply chain constraints, regulatory delays, and the limited availability of SMR technology according to AlphaSense. Additionally, Fermi faces immediate financial obligations, such as a $134 million debt to Siemens for equipment according to AlphaSense, which could strain its balance sheet if funding falls short.

Opportunities in a High-Growth Sector

Despite these risks, Fermi's vision aligns with a critical need in the AI infrastructure market. The sector's projected $3–4 trillion in infrastructure spending by the end of the decade according to JDSupra underscores the scale of opportunity. Fermi's HyperGrid project, a $70–90 billion initiative to build a nationwide AI infrastructure network, could position it as a key player if executed successfully. However, this requires not only securing additional tenants but also demonstrating operational and financial discipline.

Analysts remain cautiously optimistic, with a forward P/E ratio of 19.77 and a target price of $29.03 according to MarketChameleon. Yet, these expectations hinge on Fermi's ability to stabilize its funding pipeline and deliver on its development timelines. The recent legal investigations into its tenant agreements according to Barchart highlight the importance of transparency and governance in rebuilding investor confidence.

Conclusion: A High-Risk, High-Reward Proposition

Fermi's potential to deliver on its AI infrastructure vision is undeniable, but its current challenges-financial instability, regulatory hurdles, and execution risks-cannot be ignored. While the sector's long-term growth trajectory is robust, Fermi's pre-revenue status and overvalued stock make it a speculative bet. For investors willing to tolerate high risk, the company's innovative approach to energy and data center integration could pay off if it secures the necessary funding and regulatory approvals. However, for those seeking stability, established REITs like Digital Realty and Equinix remain more attractive options.

In the end, Fermi's success will depend on its ability to navigate its immediate setbacks and prove that its ambitious vision is more than just a promise.