TPL's Record Q2 Dropped 50% in Six Months-Can Data Centers Save the Story?

Texas Pacific Land delivered another strong operating quarter

Texas Pacific Land posted Q2 revenue of $246.1 million, adjusted EBITDA of $215.6 million, an 87.6% adjusted EBITDA margin, and GAAP EPS of $2.23. Those results reinforce a simple point: the core business is still converting West Texas land and resource assets into cash very efficiently.

The market's debate is less about current operations and more about what this quarter proves for valuation. Bulls see a company with exceptional profitability that could become more than a Permian cyclical story, helped by advanced discussions with hyperscalers, AI labs, and power generators tied to roughly 25 gigawatts of projects. Bears counter that discussions are not revenue, and they point to water sales volumes declined 19% sequentially as evidence that basin dynamics still drive the stock.

That tension matters because expectations are demanding. TPL shares rallied 52.4% in the first half of 2026, but the stock remains below its 52-week high of $547.20. In other words, investors are respecting the business, yet still demanding proof that the data-center and power narrative can turn into documented income.

The core business still looks like a resource toll road

TPL's value still rests on ownership of scarce West Texas assets. Operators continue to develop the basin, water remains essential to Permian activity, and TPL owns meaningful surface and royalty interests. That mix gives the company a toll-road quality that is hard to replicate.

Royalty production is still the steady engine

Oil and gas royalty production was approximately 39,700 barrels of oil equivalent per day, up 20% year over year. That matters because it shows active development and continuing collections from TPL's royalty base, without the company taking on the operating risk of drilling and production.

Water demand is real, but still tied to basin activity

The water business remains operationally important, yet it is not immune to operator pacing. Weak in-basin gas prices have shifted some development away from the Delaware, and management noted that water sales volumes declined 19% sequentially. That does not break the model, but it does remind investors that water demand still follows drilling activity and operator economics.

Data centers offer optionality, not yet a finished valuation case

TPL has acquiring more than 10,000 acres in Shackelford and Jones counties for approximately $100 million and says it is in advanced discussions around roughly 25 gigawatts of data-center and power projects. That is large enough to matter, but it is still mostly pipeline value rather than recorded revenue.

There is at least one concrete proof point. In the first quarter, it sold land for aggregate consideration of $42.5 million, which resulted in $20.9 million of land-sale revenue recognized immediately, and it also entered into a separate agreement to supply water to the project. That shows the basic model can work: land, power access, and water can be turned into actual customer arrangements.

What looks sturdier today: - The royalty engine is still growing, with approximately 39,700 barrels of oil equivalent per day of production, up 20% year over year. - The water business has real operating utility, even if volumes temporarily follow drilling shifts. - The company has at least one documented data-center-era transaction through the Q1 land sale and separate water-supply agreement.

What is still mostly option value: - The roughly 25-gigawatt pipeline has not yet become documented recurring revenue. - The Shackelford and Jones County land position creates flexibility, but the upside depends on contracts, infrastructure, and customer commitment.

My view: the core business is credible on its own. The data-center story is interesting, but it should be valued as upside optionality until management converts talks into signed agreements and measurable revenue streams.

The stock now needs proof, not just a better narrative

After a 52.4% first-half rally, TPL no longer looks like a stock where any good headline will do. It is more accurate to call it a wait-for-proof setup: real upside exists if management turns discussions into contracts, but the shares are no longer cheap enough to assume that conversion is automatic.

What would strengthen the case

For new buyers, the cleaner entry signal is evidence, not possibility. For existing holders, the near-term opportunity is management's expectation of one or more definitive agreements in the near term. If those agreements bring in documented revenue, water sales, or clear infrastructure commitment, the market may start valuing TPL as more than an energy-linked stock.

What would weaken the case

If TPL keeps talking about roughly 25 gigawatts of projects without turning them into signed deals, the stock could once again trade mainly on Permian sentiment. Similarly, if the decline in water sales volumes declined 19% sequentially starts reflecting a deeper slowdown in basin activity rather than a temporary shift in developer pacing, the utility-like argument becomes harder to defend.

For now, the setup is asymmetric only if you respect both sides: strong cash generation underneath, and meaningful upside above-if and only if the data-center narrative becomes revenue.