There’s lots to worry about as we enter the New Year, not least a newly emboldened and militarily active U.S. There are also things to worry about in the financial markets, even as the various indices trade at or near record levels. Much of the recent run-up in market valuations is due to investor enthusiasm for artificial intelligence (AI). Some commentators worry that the current investor AI enthusiasm may prove to be a bubble – that is, that valuations have gotten out of whack and that infrastructure investment have run far ahead of any possible (or profitable) need. Some (including me) are concerned that things could get messy if investors sour on AI or lose confidence or patience.
One of the possible consequences from an AI bubble burst could be a wave of corporate and securities litigation. A lawsuit filed earlier this week against the start-up AI energy support company Fermi, which just completed an IPO in October, may suggest what post AI-bubble litigation might look like. A copy of the complaint can be found here.
Background
Fermi is an energy infrastructure and artificial intelligence company, structured as a real estate investment trust (REIT). The company was co-founded by former Texas governor Rick Perry. The company aims to build multiple, large scale nuclear reactors and create its own network of large, grid-independent data centers — powered by a mix of nuclear and other energy sources – targeted at artificial intelligence. The company’s first project, Project Matador, aims to create the world’s largest private energy campus, providing dedicated power for AI workloads.
The company has no operating history or historical revenue. The company completed a $757.7 million IPO in October 2025.
On December 12, 2025, Fermi announced that the first tenant in the Project Matador campus had terminated its $150 million construction agreement. The company’s share price fell about 34% on this news and continued to fall thereafter. At the time the complaint was filed, the company’s share price was 59% below its price at the time of the IPO.
The Lawsuit
On January 5, 2026 – in one of the first lawsuit filings of the New Year – a plaintiff shareholder filed a securities class action lawsuit in the Southern District of New York against Fermi, certain of its directors and offices (including Rick Perry), and the company’s offering underwriters. The complaint purports to be filed on behalf of investors who purchased the company’s securities in its October 2025 offering, as well as investors who purchased the company’s securities between October 1, 2025, and December 11, 2025.
The complaint alleges that in its registration and following the IPO, the defendants failed to disclose to investors that “(1) the Company overstated its tenant demand for its Project Matador campus; (2) the extent to which Project Matador would rely on a single tenant’s funding commitment to finance the construction of Project Matador; (3) there was a significant risk that the tenant would terminate its funding commitment; and (4) as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.”
The complaint alleges that the defendants violated Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks damages on behalf of the class.
Discussion
Right now, the stock market – and indeed arguably the entire economy – is being driven by AI-related investment. Stock market valuations reflect investor AI-enthusiasm. Depending on how you measure it, as much as a third or more of the current total S&P market capitalization is AI-driven. AI-related capital investment is surging based on the same kind of enthusiasm. Among many other things, just four companies – Amazon, Google, Meta, and Microsoft – committed in 2025 to spend a record $320 billion in AI infrastructure.
The risk for everyone is the possibility that we are in the midst of an AI bubble, characterized by massive spending, soaring valuations, and – it could be argued – hype. To be sure, the investments could be supported and justified, now or eventually, by real revenues and even real profits. Or the investments could prove to represent unsustainable spending and potential overcapacity, particularly with respect to AI infrastructure, such as, for example, AI-related energy projects or data centers.
Let’s take Fermi as an example. Here is a company with a bold plan to create the world’s largest energy campus for AI companies. Even though it has no operating history or historical revenue, and apparently only a single tenant for its unbuilt campus, it managed to raise three quarters of a billion dollars in an IPO. For those of us with long memories, this scenario may be reminiscent of the dot-com boom in the early years of this century. The fact that this company was co-founded by a politician simply reinforces the dot-com associations.
What happened to this company after its IPO is instructive. The company lost a single tenant – so what? What is the big deal? Well, the big deal is that the investor enthusiasm for this company reflected not valuation fundamentals but was based solely on the company’s business plan and prospects. Without the support of underlying fundamentals, the loss of a single contract was enough to undercut investor enthusiasm.
I want to emphasize that this company is just in its early stages, its business plan could well prove to be valid, and the company could eventually prove to be profitable and successful. My analysis here is meant to show only how key investor confidence and enthusiasm is to the current circumstances surrounding all things AI-related.
When investor enthusiasm drives valuations, there is at a minimum a risk of volatility. Even the slightest bump can drive share prices down. And when share prices decline, securities litigation can follow, as was the case here. My concern is that what happened here is not merely the story of a single company, but rather a projection of what could be in store if investors lose confidence or enthusiasm for the whole current AI project. The share prices of many companies could decline. Indeed, an AI bubble burst could (as happened when the dot-com frenzy crashed) affect the financial markets as a whole. And as share prices drop, securities litigation could follow.
I am not predicting this will happen. I am concerned that it might happen. This new lawsuit shows what it might look like.