Fermi (FRMI) is in focus after securing a 15 year contract with AI cloud provider TensorWave at its Project Matador site in Amarillo, Texas. The agreement is tied to a long term data center development plan.

Fermi’s latest contract news has arrived alongside sharp price swings, with the stock posting a 1 day share price return of 21.09% and a 7 day return of 12.84%. However, year to date the share price return is down 19.27%, which points to strong short term momentum after a weaker start to the year.

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After this sharp move, Fermi trades at a steep discount to analyst targets and estimated fair value while still reporting losses. Is the market being overly cautious, or are investors rightly questioning how these long term contracts translate into value?

Most Popular Narrative: 58.1% Undervalued

Fermi last closed at $7.12, while the most followed narrative anchors on a fair value of $17 that uses a 7.52% discount rate. That gap reflects a view that long term power contracts and data center tenants could justify a much higher earnings and cash flow profile than today’s loss making position suggests.

Fermi is building a large scale private power grid and related infrastructure to supply electricity to energy intensive tenants such as data centers and chip ecosystem players.

The scarcity of suitable generation equipment and large scale permits, including Fermi's 6 gigawatt air permit and application for an additional 5 gigawatts, can improve its negotiating position with tenants that are competing for power. This may support pricing and long term earnings potential.

Want to see what earnings and margins this story is built on? The narrative sets out aggressive revenue ramp assumptions and a future profit multiple that would usually sit with mature cash generators. Curious how those inputs stack up against a pre revenue balance sheet that still reports a loss of $718.4m. The full narrative lays out the exact path behind that $17 figure.

Result: Fair Value of $17 (UNDERVALUED)

However, Fermi is still pre revenue and relies on complex, multibillion dollar tenant and financing deals; delays or weaker terms could quickly challenge this undervalued story.

Next Steps

This mix of optimism and concern around Fermi leaves room for different interpretations, so move quickly, review the full picture, and weigh both sides with 2 key rewards and 3 important warning signs

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.