A buzzy data center startup calls itself a utility. That could be a problem. (www.businessinsider.com)

Fermi, a data center startup aiming to capitalize on the AI boom, is encountering challenges due to its designation as a Real Estate Investment Trust (REIT). CEO Toby Neugebauer recently presented the company as a "sophisticated utility" at a Wall Street conference; however, the REIT structure restricts Fermi's revenue-generating activities predominantly to rental income. Selling power could jeopardize this classification, which is significant as REITs benefit from tax exemptions while distributing most earnings to shareholders. Analysts have raised concerns about Fermi’s financial viability, emphasizing the need for precise management of its income streams to maintain its REIT status. The company’s ambitious Project Matador aims to build 11 gigawatts of electricity in West Texas, leveraging a combination of energy sources including nuclear and solar, while proposing to "rent access to power-ready real estate" to clients. Yet, the intricacies of its financial model, which includes setting up taxable REIT subsidiaries, may complicate its income dynamics and investor appeal. Losing REIT status could result in a substantial decline in stock value, as evidenced by historical cases where REITs faced similar transitions. As Fermi navigates this complex landscape, it highlights the intersection of financial structures with technological advancements in the fast-evolving AI data center sector.