Fervo Energy targets $1.3 billion IPO as AI demand boosts geothermal

Geothermal energy startup Fervo Energy announced on Monday that it hopes to raise up to $1.3 billion in its initial public offering. The company would be valued at up to $6.5 billion if its shares sell at the top of its price target of $21 to $24 per share. This valuation target is more than twice what Fervo had reportedly been seeking earlier this year, when the company confidentially filed paperwork with the SEC (the US Securities and Exchange Commission) to begin the IPO process. Once public, Fervo’s stock will trade on the Nasdaq stock exchange under the ticker symbol FRVO.

Fervo’s public offering plans come on the heels of a successful market debut by nuclear power startup X-energy, signaling strong investor appetite for alternative energy providers. A comparison of the financial metrics of the two energy startups highlights this momentum:

• Fervo Energy: Hopes to raise up to $1.3 billion in its initial public offering, targeting a valuation of up to $6.5 billion based on its $21 to $24 price target.
• X-energy: Raised $1 billion in its upsized initial public offering after seeking a valuation of around $7 billion, and now holds a market capitalization of over $8 billion.

Both Fervo and X-energy have been boosted by surging electricity demand from technology companies, which are racing to secure power supplies to feed their artificial intelligence data centers. This scramble for power has driven prices for new natural gas power plants up 66% in the last two years.

To compete with traditional fossil fuels, Fervo must lower its production costs. The company’s first large-scale power plant project, Cape Station, will generate electricity at a cost of $7,000 per kilowatt of installed capacity. Fervo’s ultimate goal is to reduce its generation costs to $3,000 per kilowatt of capacity, at which point its geothermal power will start being cost-competitive with natural gas.

Why it matters

Fervo’s IPO highlights how the massive electricity requirements of AI data centers are creating a tailwind for alternative energy startups, moving them closer to cost-competitiveness with traditional power sources.