Amazon has withdrawn from discussions to be the first tenant at Fermi Inc.’s sprawling AI data center site in West Texas. Earlier, when Fermi first announced that an investment-grade tenant had exited a deal that would have covered $150 million in construction expenses, its shares plunged 46% on December 12.
Now, Fermi CEO Toby Neugebauer has confirmed in a December 15 phone call with Business Insider that Amazon is the tenant that pulled back funding from the project.
Fermi’s Neugebauer asserts that talks between Amazon and the firm are still constructive
Fermi is hoping to create the world’s largest private grid to power a sprawling data center campus, with a $19 billion valuation as of October. The company first went public in September, raising more than $680 million at $21 a share. However, since the project’s announcement, concerns have arisen that the AI-led power buildout may be running ahead of demand, dragging on AI-linked stocks as questions mount over tenant security and the need for such large-scale facilities.
The company’s development, Project Matador, relies on a long-term, 99-year ground lease with the Texas Tech University System, subject to the firm finalizing a letter of intent with a tenant. The company thus called for a tenant to take the first gigawatt of capacity across 12 facilities at its 11-gigawatt campus in the Texas Panhandle.
Amazon had been working toward a deal that would have paid Fermi more than $20 billion over the next two decades. However, it withdrew its offer to provide the $150 million upfront payment required to initiate construction. Nonetheless, Neugebauer insists talks remain constructive and that the advance cancellation does not signal a breakdown.
He remarked, “It’s just a normal negotiation. Their issue was spending money after the exclusive period had ended.” He added, “It’s a big deal. Big deals take longer.”
After Fermi first announced that a tenant had withdrawn, analysts at Cantor Fitzgerald noted that they learned the anchor tenant had sought last-minute pricing adjustments that Fermi rejected.
Aside from Amazon, Palantir, which provides software to law enforcement and government clients, had also been eyeing the site. The software firm is still in talks with Fermi.
Amazon is in discussions to secure a $10 billion deal with OpenAI
Amazon is still in negotiations with other companies. According to reports, the firm is exploring a $10 billion deal with OpenAI that would utilize its AI chips. The deal would value OpenAI at over $500 billion.
The announcement comes shortly after OpenAI converted to a for-profit structure, giving it more leeway to negotiate with investors beyond Microsoft, which already owns 27% of the company.
If the deal goes through, it would mark a milestone for Amazon’s semiconductor division. Nvidia still dominates the market, but developers like Meta are already exploring alternatives from Google and others.
Nevertheless, Amazon is looking to expand its AI investments, given it already has an $8 billion stake in Anthropic, an OpenAI rival. Earlier this month, the firm unveiled its Trainium chip that enhances its Amazon Web Services capabilities. According to Bloomberg, the company claims that Trainium offers cheaper and more efficient computing than Nvidia’s GPUs for the heavy math required by large models, and it’s attempting to win over teams that want to reduce their costs.
Amazon also released new Nova models, including Nova 2 Pro, that can process text, images, video, and speech to generate text.
Moreover, the company plans to add nearly 1.3 gigawatts of AI and supercomputing power across AWS Top Secret, Secret, and GovCloud (US) regions by constructing data centers with advanced compute and networking.
At the start of the year, Amazon CEO Andy Jassy had noted, “I think that both our business, our customers, and shareholders will be happy, medium to long-term, that we’re pursuing the capital opportunity and the business opportunity in AI. We also have capex that we’re spending this year in our stores business, really with an aim towards trying to continue to improve the delivery speed and our cost to serve.”
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Source: https://www.cryptopolitan.com/amazon-backs-out-of-fermis-data-center-deal/
