AI Boom Propels A Century-Old Texas Land-owner Company To 230% Stock RallyA Texas land company founded during the Wild West era more than a century ago is becoming an unlikely beneficiary of market euphoria over artificial intelligence.
Dallas-based Texas Pacific Land Corp., which employs 100 people, has seen its stock more than triple this year, giving it a market value of almost $40 billion. That's bigger than Halliburton Co., the largest oilfield servicer in North America, and asset manager State Street Corp. It's more than four times the size of American Airlines Group Inc., which is based in nearby Fort Worth and has over 100,000 workers.
Bitcoin mines, utility-scale batteries and renewable power are already being built on TPL's 873,000 acres in West Texas, an area bigger than Yosemite National Park. But that could be just the beginning. The swath of land in the oil-rich Permian Basin, where natural gas costs almost nothing, is an opportunity for tech giants like Google owner Alphabet Inc., Microsoft Corp. and Amazon.com Inc. to access cheap electricity for energy-hungry servers.
TPL's shares surged 14% Friday on the news that the company would replace Marathon Oil Corp. in the S&P 500.
"There's a lot of conversations taking place within the industry and definitely within TPL" about leasing land to data centres, TPL Chief Executive Officer Tyler Glover said this month in a conference call with investors. "We feel that we're positioned as well as anyone in West Texas to provide land and water solutions as those opportunities unfold."
AI's potential to revolutionize how people live, work and play has been the driving force behind the S&P 500 Index's 50% rise over the past two years. But to realize the real-world profits implied by their stock valuations, Big Tech is ploughing money into physical infrastructure. Alphabet, Microsoft, Amazon and Facebook owner Meta Platforms Inc. are expected to spend more than $200 billion next year, according to data compiled by Bloomberg, much of it on data centres.
"A lot of different sectors will be on the receiving end of that," said Greg Halter, who helps manage $4 billion as director of research at Carnegie Investment Counsel. "You have these oddball entities being revived because all of a sudden they have something valuable."
A spokesperson for TPL declined to comment. The company's shares have jumped 230% this year to trade at $1,730 on Friday.
The high-tech rally is a long way from TPL's roots as a trust founded in 1888 to repay bondholders who financed a failed attempt to build a railway from East Texas to San Diego during westward expansion. The trust gained 3.5 million acres, an area the size of Connecticut, and slowly sold them off to repay creditors over the following century. But land in the dry, sparsely populated western part of the Permian Basin proved hardest to sell.
The acreage turned out to be a multibillion-dollar stroke of good fortune. As the shale revolution took off in the 2000s, that land - and the associated mineral rights - became incredibly valuable. TPL now receives nearly $100 million a quarter in royalties from oil producers like Exxon Mobil Corp., Chevron Corp. and ConocoPhillips while paying nothing toward the cost of their wells. It earned a further $80 million from water sales and fees for companies using its land in the most recent quarter, contributing to an 83% profit margin.
At least one other Texas landowner has gotten a boost from investor enthusiasm about AI. LandBridge Co., which owns about 220,000 acres in the Permian, has surged more than threefold since its initial public offering in June. The company agreed to buy more land this month in a deal that would expand its acreage by 20%, citing the potential for "digital infrastructure and renewable energy projects."
Along with TPL and LandBridge, utility and power stocks are some of the biggest beneficiaries of the AI surge, with Vistra Corp, GE Vernova Inc. and Constellation Energy Corp. all in the top 10 S&P 500 performers this year. Pipelines, which provide gas to power plants, are also flying. Kinder Morgan Inc., Oneok Inc. and Targa Resources Corp. are all up more than 50% this year.
"This is the AI-adjacent pick and shovel trade," said Kevin Simpson, who helps manage $11 billion, including TPL shares, as chief executive officer of Capital Wealth Planning LLC. "These are not obscene valuations if the data centre thesis plays out."
A gas flare burns past a pump jack in the Permian Basin area of Loving County, Texas. Photographer: Angus Mordant/Bloomberg
Now investors are thinking further ahead. With a ChatGPT query using nearly ten times as much electricity as a Google search, US data centre power demand is expected to grow about 170% by 2030, according to Goldman Sachs Group Inc. "This increased demand will help drive the kind of electricity growth that hasn't been seen in a generation," the bank said in May.
Sam Altman, founder of ChatGPT owner OpenAI, has pitched the idea of five-gigawatt centres. That could require millions of square feet of space and enough energy to light up many US cities. There's concern that the electricity needs of data centres will put climate goals at risk as companies turn to fossil fuels to power them.
The Permian appears well placed to fill at least some of the energy demand. The basin produces enormous quantities of natural gas as a byproduct of oil, filling pipelines to capacity. Much of the excess is burned into the atmosphere in a process known as flaring. Gas at the basin's Waha hub traded for 96% less than the US benchmark on average over the past year, and Permian gas prices actually went negative more than once this year as producers paid for the fuel to be taken off their hands.
Momentum is now gathering behind the idea that this cheap, abundant gas could be used for power plants, which in turn could supply energy to data centres, crypto mines and the oil field. Still, the market for some AI-adjacent stocks may be getting frothy, at least in the near term. Capital Wealth Planning's Simpson said he recently trimmed his position in TPL by a third after the stock soared 40% in a month.
It's too soon to say whether the TPL's land will soon be home to sprawling data centres, according to CEO Glover. But the company is in prime position to benefit from AI's expansion, he said.
"TPL just has a lot of positive attributes for data centres," he said. "Nobody has more land than us in West Texas."
Dallas-based Texas Pacific Land Corp., which employs 100 people, has seen its stock more than triple this year, giving it a market value of almost $40 billion. That's bigger than Halliburton Co., the largest oilfield servicer in North America, and asset manager State Street Corp. It's more than four times the size of American Airlines Group Inc., which is based in nearby Fort Worth and has over 100,000 workers.
Bitcoin mines, utility-scale batteries and renewable power are already being built on TPL's 873,000 acres in West Texas, an area bigger than Yosemite National Park. But that could be just the beginning. The swath of land in the oil-rich Permian Basin, where natural gas costs almost nothing, is an opportunity for tech giants like Google owner Alphabet Inc., Microsoft Corp. and Amazon.com Inc. to access cheap electricity for energy-hungry servers.
TPL's shares surged 14% Friday on the news that the company would replace Marathon Oil Corp. in the S&P 500.
"There's a lot of conversations taking place within the industry and definitely within TPL" about leasing land to data centres, TPL Chief Executive Officer Tyler Glover said this month in a conference call with investors. "We feel that we're positioned as well as anyone in West Texas to provide land and water solutions as those opportunities unfold."
AI's potential to revolutionize how people live, work and play has been the driving force behind the S&P 500 Index's 50% rise over the past two years. But to realize the real-world profits implied by their stock valuations, Big Tech is ploughing money into physical infrastructure. Alphabet, Microsoft, Amazon and Facebook owner Meta Platforms Inc. are expected to spend more than $200 billion next year, according to data compiled by Bloomberg, much of it on data centres.
"A lot of different sectors will be on the receiving end of that," said Greg Halter, who helps manage $4 billion as director of research at Carnegie Investment Counsel. "You have these oddball entities being revived because all of a sudden they have something valuable."
A spokesperson for TPL declined to comment. The company's shares have jumped 230% this year to trade at $1,730 on Friday.
The high-tech rally is a long way from TPL's roots as a trust founded in 1888 to repay bondholders who financed a failed attempt to build a railway from East Texas to San Diego during westward expansion. The trust gained 3.5 million acres, an area the size of Connecticut, and slowly sold them off to repay creditors over the following century. But land in the dry, sparsely populated western part of the Permian Basin proved hardest to sell.
The acreage turned out to be a multibillion-dollar stroke of good fortune. As the shale revolution took off in the 2000s, that land - and the associated mineral rights - became incredibly valuable. TPL now receives nearly $100 million a quarter in royalties from oil producers like Exxon Mobil Corp., Chevron Corp. and ConocoPhillips while paying nothing toward the cost of their wells. It earned a further $80 million from water sales and fees for companies using its land in the most recent quarter, contributing to an 83% profit margin.
At least one other Texas landowner has gotten a boost from investor enthusiasm about AI. LandBridge Co., which owns about 220,000 acres in the Permian, has surged more than threefold since its initial public offering in June. The company agreed to buy more land this month in a deal that would expand its acreage by 20%, citing the potential for "digital infrastructure and renewable energy projects."
Along with TPL and LandBridge, utility and power stocks are some of the biggest beneficiaries of the AI surge, with Vistra Corp, GE Vernova Inc. and Constellation Energy Corp. all in the top 10 S&P 500 performers this year. Pipelines, which provide gas to power plants, are also flying. Kinder Morgan Inc., Oneok Inc. and Targa Resources Corp. are all up more than 50% this year.
"This is the AI-adjacent pick and shovel trade," said Kevin Simpson, who helps manage $11 billion, including TPL shares, as chief executive officer of Capital Wealth Planning LLC. "These are not obscene valuations if the data centre thesis plays out."
A gas flare burns past a pump jack in the Permian Basin area of Loving County, Texas. Photographer: Angus Mordant/Bloomberg
Now investors are thinking further ahead. With a ChatGPT query using nearly ten times as much electricity as a Google search, US data centre power demand is expected to grow about 170% by 2030, according to Goldman Sachs Group Inc. "This increased demand will help drive the kind of electricity growth that hasn't been seen in a generation," the bank said in May.
Sam Altman, founder of ChatGPT owner OpenAI, has pitched the idea of five-gigawatt centres. That could require millions of square feet of space and enough energy to light up many US cities. There's concern that the electricity needs of data centres will put climate goals at risk as companies turn to fossil fuels to power them.
The Permian appears well placed to fill at least some of the energy demand. The basin produces enormous quantities of natural gas as a byproduct of oil, filling pipelines to capacity. Much of the excess is burned into the atmosphere in a process known as flaring. Gas at the basin's Waha hub traded for 96% less than the US benchmark on average over the past year, and Permian gas prices actually went negative more than once this year as producers paid for the fuel to be taken off their hands.
Momentum is now gathering behind the idea that this cheap, abundant gas could be used for power plants, which in turn could supply energy to data centres, crypto mines and the oil field. Still, the market for some AI-adjacent stocks may be getting frothy, at least in the near term. Capital Wealth Planning's Simpson said he recently trimmed his position in TPL by a third after the stock soared 40% in a month.
It's too soon to say whether the TPL's land will soon be home to sprawling data centres, according to CEO Glover. But the company is in prime position to benefit from AI's expansion, he said.
"TPL just has a lot of positive attributes for data centres," he said. "Nobody has more land than us in West Texas."