A buzzy data center startup calls itself a utility. That could be a problem.
Business Insider
February 24, 2026
AI-Generated Deep Dive Summary
Fermi America, a data center startup positioning itself as a cutting-edge utility to power the AI boom, faces a significant challenge due to its corporate structure as a real estate investment trust (REIT). While CEO Toby Neugebauer has pitched the company as a highly sophisticated utility, selling power directly to AI-driven data centers, this strategy could conflict with IRS guidelines for REITs. These entities are required to derive most of their income from rent, dividends, or mortgage interest, not from power sales. If Fermi America violates these rules, it could lose its REIT status, leading to higher taxes, reduced dividends, and potential stock price declines. The company is actively working to ensure its power operations stay within regulatory limits.
The risks of misclassification are particularly acute for Fermi, which plans to generate electricity through a mix of natural gas, solar, nuclear, and grid supply under its Project Matador. By structuring power sales through taxable REIT subsidiaries, the company aims to keep these activities under 25% of its total assets. However, the IRS could still challenge this approach if it deems public statements or operational practices inconsistent with REIT requirements. Experts warn that such challenges could harm investor confidence and lead to a reevaluation of the stock.
The broader context highlights how financial engineering is increasingly intertwined with technological innovation in the AI-driven data center sector. Companies like Fermi are not just selling power but also pitching their financial structures as investment opportunities. While this approach may attract risk-tolerant investors seeking tax advantages, it comes with significant risks. If Fermi loses its REIT status, it would face immediate consequences, including loss of dividend income and a potential drop in stock price. Additionally, the company's international focus on foreign investment could complicate its regulatory compliance.
This situation underscores the complexities businesses face when balancing innovation with financial constraints. For readers interested in business and finance, Fermi's story offers insights into how companies navigate regulatory challenges while pursuing high-growth opportunities in emerging markets like AI and renewable energy. The outcome of Fermi's REIT status will likely shape its future success and set a precedent for similar ventures aiming to capitalize on the data center boom.
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Originally published on Business Insider on 2/24/2026