Image Credit: Associated Press
Listen to the audio version of this article (generated by AI).
Key Points
- SB Energy has announced plans to go public, but AI investors should be wary, as the company had to give away billions of dollars in value to secure OpenAI as a tenant.
- SB Energy issued warrants now worth $5.5 billion to OpenAI as part of a deal to land the AI lab as a tenant at data centers it’s developing in Milam County, Texas.
- A poorly capitalized SB Energy, with little history of developing data centers, is paying an AI lab with a history of rising losses to occupy its massive but not-yet-built facility.
SB Energy (SBE) is planning to go public, but details in its recently filed S-1 initial public offering (“IPO”) prospectus should give artificial intelligence (“AI”) investors a wake-up call. The data-center developer had to give away billions of dollars in value to secure OpenAI as a tenant at to-be-constructed facilities, according to SB Energy’s prospectus.
SB Energy’s move suggests demand for AI data centers may not be nearly as robust as AI bulls suggest, especially as OpenAI seems to lose more money each quarter.
Let’s dig into the details to understand what SB Energy did and why.
In January, SB Energy issued warrants to OpenAI as part of a deal to land the AI lab as a tenant at data centers it’s developing in Milam County, Texas. As of the prospectus date, OpenAI owns 3.99 million warrants, valued at $5.5 billion on June 30, and they expire in 2036.
Warrants are a kind of financial derivative that entitle the owner to buy a security from the issuer at a specified price until the expiration date. In this case, OpenAI can buy up to 3.99 million shares at $0.01 per share if and when each of the eight warrant tranches vests.
One tranche has already vested when the two companies signed a lease for 800 megawatts at SB Energy’s Milam County facility. A second tranche will vest if SB Energy prices an initial public offering (“IPO”). The firms have agreed to a cashless exercise of these vested warrants, so that OpenAI simply receives the value of the warrants as shares of SB Energy stock without having to put up any money of its own – a valuable point for OpenAI, since it’s burning cash.
Six further tranches vest under other conditions, including five that vest as SB Energy’s market capitalization hits milestones from $80 billion to $200 billion.
Why would SB Energy just give away warrants that were worth more than $3.6 billion at the time of issuance – and now valued at $5.5 billion?
SB Energy Just Gave Away Billions to OpenAI
As part of its IPO, SB Energy is looking to raise between $5 billion and $7 billion with an initial market cap of $50 billion. But the firm has a history of losses, and almost all of its handful of data centers are yet to be constructed. In the first six months of 2026, SB Energy reported sales of $138.7 million and losses of $3.2 billion, mostly due to changes in the warrants’ value.
So, enticing OpenAI to sign a lease with billions in warrants gets SB Energy in the game quickly with a tenant that has billions in financing. With a signed contract in hand for a future data center, SB Energy can go to a lender and access financing on more agreeable terms (or at all). That’s how neoclouds such as CoreWeave (CRWV) have been playing the game, too.
Subsequently, SB Energy announced it will build another massive data center to be leased by OpenAI, an 8.0-gigawatt facility known as the PORTS-Pike Technology Campus in Pike County, Ohio. Nvidia (NVDA) stepped in to backstop up to $105 billion for the facility’s first 4.25 gigawatts and has an option to backstop the remaining portion of the build-out. Operation will begin in phases in 2028.
But step back for a moment and consider what SB Energy’s financing move really does. If the AI market is really as hot as bulls say it is, why does a developer need to pay a prospective tenant? Shouldn’t AI labs – which are unable to keep up with demand, the story goes – be clamoring for a data-center deal, so that a supplier such as SB Energy doesn’t need to pay its tenants?
What we’re seeing is relatively little demand for AI data centers that isn’t driven by the two major labs, OpenAI and Anthropic. The two most lavishly funded labs are running around signing massive deals, such as with Oracle (ORCL), which is building data centers for OpenAI. The AI lab owes around half of Oracle’s $638 billion in remaining performance obligations as rent.
OpenAI has $1.4 trillion in spending commitments, and Anthropic inked $517 billion in compute deals in just 11 months. That’s translating into a huge share of AI revenue for the hyperscalers: 70% of Microsoft’s (MSFT) revenue in its latest fiscal year, per Bloomberg estimates. Analyst Ed Zitron pegs OpenAI and Anthropic’s sales at a similar level to Google and Amazon (AMZN).
In short, a poorly capitalized SB Energy with little history in developing data centers is paying an AI lab with a history of rising operating losses to occupy its massive but not-yet-built facility.
That sounds like a recipe for trouble.
SB Energy’s IPO Timeline: Will It Race to Go Public?
SB Energy is relying on the weakest major player among AI labs, OpenAI. It’s on the hook to spend $1.4 trillion and generated a $12.3 billion loss in the second quarter, after a $9.3 billion loss in the first quarter. It will keep burning money and may be structurally unprofitable.
While OpenAI raised $122 billion earlier this year in a huge funding round, it’s going to need to raise cash again soon – and not just a little. And it has a few ways to lose in the fundraising process and really just one way to win. It needs to raise at least tens of billions of dollars at a higher valuation than it received in its latest funding round in March, $852 billion.
It loses if it can’t raise enough money, the valuation does not rise enough, or – horror! – the valuation actually falls. Given that OpenAI postponed an IPO over concerns it would not reach a $1 trillion valuation, the potential upside here may be limited.
If OpenAI can’t get a fundraising round that sustains investors’ optimism about AI as a business, it will be felt across the industry. As a result, SB Energy may be racing to the IPO window in the next few weeks to get ahead of this possibility. But even if SB Energy does complete its offering, it will still be almost wholly reliant on OpenAI to survive.
Regards,
James Royal, PhD
Editor’s Note: A highly secure site in West Texas now houses an emerging potential $10 trillion technology backed by Elon Musk and Sam Altman. This breakthrough could completely replace our need for foreign oil – and send one small group of stocks soaring in the process. Click here to learn how you can invest in Elon’s next $10 trillion move.
