Fermi (FRMI) Q3 2026 earnings review
Fermi cancels its first lease, but a tech giant pays upfront
Fermi traded a troubled startup lease for upfront cash from a major tech company while pivoting to a cheaper business model. The developer of the Project Matador private power grid in Texas canceled its binding lease with artificial intelligence startup TensorWave, wiping out its entire contracted backlog. In its place, chief executive Lee McIntire announced that an unnamed investment-grade cloud giant committed $215 million up front for 600 megawatts of power capacity, even though the two sides have not signed a final lease.
| Customer upfront commitments | $215M for 600 MW starting in 2027 (+$90M steel sale planned) |
|---|---|
| Binding lease backlog | $0 $6.5B TensorWave lease terminated |
| Cash and restricted cash | $315.5M $958.4M of net debt at quarter end |
| 2027 power outlook | 600 MW cut from 640 MW nameplate target |
⚖️ Verdict: 🟢 Bullish
The story got better because a creditworthy tech giant is now funding construction up front, and Fermi's shift toward leasing powered land cuts its per-megawatt build cost by about two-thirds by our math. That combination directly addresses the multi-billion-dollar funding gap that threatened the company last quarter. One caution: Fermi is back to having zero signed leases, debt nearly doubled to $958 million, and the press release left out whether the preliminary deal prevents lender repayments starting in November.
The question now is whether this $215 million upfront commitment converts into a binding long-term lease and satisfies Fermi's equipment lenders before debt repayments begin. If the customer signs a powered-land lease and buys $90 million of Fermi's steel, the company secures recurring rent without heavy borrowing; if talks stall, just as a previous $150 million advance did last December, debt covenants could squeeze its remaining cash. The third-quarter 10-Q filing and lease negotiations over the next few months will settle it.
🐂 Bull Case
A Major Tech Customer Commits $215 Million Up Front
Fermi develops Project Matador, a private power grid and data center campus in Texas. Chief executive Lee McIntire said an unnamed investment-grade hyperscaler — a large cloud computing company — signed up for 600 megawatts of power capacity starting in 2027. Unlike smaller artificial intelligence startups that need outside credit guarantees, an investment-grade tech company can fund its own construction and pay upfront before signing a final lease.
- Prepayment agreement: $200 million in upfront customer funding for the 600 megawatt buildout
- Early construction agreement: $15 million to advance site preparation right away
- Contemplated materials purchase: $90 million for structural steel and building materials Fermi bought in advance
This cash inflow matters because Fermi could not easily finance a multi-billion-dollar buildout on its own balance sheet. By collecting up to $305 million in customer prepayments and material purchases, the power developer brings in construction cash without issuing new shares.
What to watch: the conversion of these preliminary agreements into a binding 15-to-20-year lease and the completion of the $90 million steel sale. A signed lease would lock in recurring rent and power fees for the first 600 megawatts.
Fermi Shifts to a Cheaper Land-and-Power Model
Last quarter, Fermi planned to build full turnkey data centers, where the developer pays for the power plant, the building shell, and the interior cooling and electrical systems. In its third-quarter presentation, the company shifted its focus to a model it calls Powered Land+, stating that "Powered Land+ is our capital-light entry point today." Under this approach, the Texas developer provides power, water, fiber, and prepared land, while the tenant pays to build its own data center buildings.
By our math, using the middle of management's benchmark ranges, building Powered Land+ costs $4.5 million per megawatt, or 67% less than the $13.55 million per megawatt required for a full turnkey facility. That shift slashes the billions of dollars Fermi previously needed to raise and removes the risk of data center construction delays.
What to watch: whether the upcoming lease with the 600-megawatt customer uses the Powered Land+ structure. Confirming that structure would prove Fermi no longer needs to borrow ~$3 billion to build data center halls itself.
Permits and Turbines Give Fermi a Head Start
Fermi pitches speed to power as its main advantage over rival data center developers. The company already holds an air permit for 6 gigawatts of natural gas generation and owns or leases 2 gigawatts of gas turbines. During the third quarter, the developer moved more of that equipment onto the Project Matador site in Amarillo, with all three GE 6B turbines, all three GE 6B generators, and five of the six Siemens F-class units now on site.
Having turbines on the ground and foundations poured allows the group to offer power starting in 2027, whereas ordering new gas turbines today carries a two-to-six-year wait. That equipment inventory allowed Fermi to attract a major cloud customer quickly after its previous tenant deal fell apart.
What to watch: the award of the engineering and construction contract for the large Siemens F-class turbines, which remain in negotiations. Signing that contract starts the 22-month clock to bring those 728 megawatts online.
🐻 Bear Case
Fermi Cancels Its Only Lease and Remains Pre-Lease
"This gives us growing confidence in our path forward and puts us in strong position to evolve from pre-revenue, pre-lease to the next phase of growth," chief executive Lee McIntire said. Yet McIntire's own words admit that Fermi is once again a pre-lease company. Three months ago, management celebrated a binding 15-year, $6.5 billion lease with artificial intelligence cloud provider TensorWave for 222 megawatts and promised to name an investment-grade financial backstop within days.
Instead, Fermi and TensorWave "terminated the Data Center Lease and Services Agreement signed in August 2026" along with the associated AMD credit support agreement. By our math, that cancellation wiped out all $6.5 billion of Fermi's contracted revenue backlog. The new 600-megawatt hyperscaler commitment is happening "ahead of finalizing a lease", meaning Fermi still has no signed long-term lease in place. Furthermore, the company previously terminated a $150 million construction advance with another prospective tenant in December 2025, showing that early commitments do not always become leases.
What to watch: the signing of a definitive long-term lease with the new 600-megawatt customer. Until both sides sign that contract, Fermi has zero contracted long-term rent.
Debt Nearly Doubled While Cash Burn Continued
Fermi continues to spend heavily to buy turbines and prepare its Texas site before earning a dollar of revenue. The company said it focuses on "disciplined capital deployment matched to commercial progress", and quarterly property and equipment spending slowed to $133.4 million from $185.0 million in the second quarter. However, cash used in operations rose to $54.5 million by our math, bringing third-quarter free cash outflow to $187.9 million. The nine-month cash flow statement also revealed a $6.9 million write-off of previously capitalized construction in progress, likely tied to the abandoned TensorWave build.
To fund its bills, the developer issued $431.3 million of 5% convertible notes in July and drew more on its equipment loans, charging 12.0% to 12.9% interest on two of its warehouse facilities. Total net debt jumped 84% in a single quarter to $958.4 million. Cash and restricted cash ended September at $315.5 million, leaving $642.8 million in net debt by our math.
What to watch: the exact timing of the $200 million customer prepayment in the third-quarter 10-Q filing. That cash must arrive soon to offset the ~$188 million quarterly cash burn.
Overhead Costs Jumped on Stock Grants and Advisor Fees
General and administrative expenses — the overhead cost of running the company — jumped to $142.2 million in the third quarter from $26.8 million in the second quarter. Two non-cash items drove most of the bill: $65.8 million in employee stock compensation and $21.5 million of financial advisory fees that Fermi paid by issuing common stock. Paying advisors in stock saves cash today, but it dilutes existing shareholders; weighted average shares rose to 642.7 million, up 37.8% from a year ago.
Even after stripping out stock compensation and stock-settled advisor fees, underlying overhead rose to $54.9 million by our math, up 30.6% from the roughly $42.0 million spent in the second quarter. That means cash overhead is growing before the site generates any revenue.
What to watch: cash general and administrative expenses in the fourth quarter. If underlying overhead stays near $55 million a quarter, it will consume more than $200 million of liquidity a year on its own.
Risks this quarter didn't answer
Because Fermi released only its earnings announcement and slide deck ahead of its Form 10-Q filing, four standing risks got no update this quarter.
- Debt covenants and going-concern status: the $445 million MUFG turbine loan requires 10% quarterly repayments starting in November 2026 unless Fermi signs a binding lease for at least 400 megawatts, and the $92 million Keystone loan requires an approved customer agreement by December 31, 2026; the 10-Q debt footnote will show whether preliminary agreements satisfy the lenders.
- Hillcore power partnership: the August framework for 2.6 gigawatts of third-party power required definitive contracts within 90 days (November 9, 2026), and the release did not say whether the parties met that deadline.
- Legal disputes and governance: the release gave no update on the consultant lawsuit claiming over $415 million, the securities class action, the Firebird lawsuit involving General Counsel George Wentz, or the founder's shareholdings; the 10-Q legal contingencies note will provide the current status.
- Nuclear power timeline: neither the release nor the presentation gave a schedule for the Westinghouse nuclear reactors, which were delayed to 2033 last quarter.
👓 Other Themes
Texas Grid Freeze Pushes AI Builders Off-Grid
Data center builders face worsening bottlenecks in Texas, where the state grid operator (ERCOT) froze new large power connections and regulators paused new air permits. Because Fermi already holds a 6-gigawatt air permit and generates power on a private grid, those state freezes push cloud companies toward Project Matador. Separately, Texas Tech University System Chancellor Brandon Creighton reaffirmed the university's land lease partnership ahead of a year-end construction deadline.
💲 Other KPIs
Property, plant, and equipment — the book value of Fermi's turbines, transformers, and site work — rose 7.9% from last quarter to $1.67 billion, up from $935.3 million at the end of 2025. Additions slowed to $133.4 million in the third quarter from $185.0 million in the second quarter and $441.2 million in the first quarter as early turbine purchases finished.
Unpaid bills and accrued expenses fell 15.3% from $149.7 million in the second quarter and are down 28.2% from $176.6 million at the end of 2025. The drop follows slower quarterly equipment spending and the payment of earlier construction invoices using proceeds from the July convertible bond sale.
🔮 Guidance
Cut. The presentation projects 600 megawatts of year-end 2027 sellable power — fully reserved by the new hyperscaler — plus up to 325 megawatts of additional power if all equipment is contracted. Last quarter, management targeted 640 megawatts of nameplate capacity by late 2027, down from 1,458 megawatts targeted in the first quarter. By our math, the 2.0-gigawatt plan leaves 732 megawatts to add in 2028 and 668 megawatts in 2029.
❓ Key Questions
Do the preliminary agreements satisfy the MUFG and Keystone loans?
Fermi's $445 million MUFG loan begins 10% quarterly repayments in November 2026 unless the company signs a 400-megawatt lease, and the Keystone loan requires an approved customer agreement by year-end. Management did not state whether a prepayment agreement without a signed lease satisfies its lenders.
Why did Fermi and TensorWave cancel the August lease?
Three months ago, management called the 222-megawatt, $6.5 billion TensorWave contract a binding lease and said the investment-grade credit backstop would be finalized within days. Investors need to know whether the backstop fell through or whether Fermi chose to reallocate the power.
Did Fermi sign definitive contracts with Hillcore by November 9?
The August framework agreement for Hillcore to fund and build 2.6 gigawatts of power had a 90-day window to reach binding contracts, which expired three days before the third-quarter release. The release did not mention Hillcore, although the alliance still appears in the presentation appendix.
What caused the $6.9 million construction write-off and $21.5 million fee?
The cash flow statement shows a $6.9 million write-off of previously capitalized construction in progress, and the income statement includes $21.5 million in stock-settled financial advisory fees. Management should explain what work it scrapped and which transaction triggered the advisory payout.