Here's Everything Investors Need to Know About the Fervo Energy IPO

Fervo Energy (NASDAQ: FRVO) priced its initial public offering (IPO) on Tuesday, May 12, at $27 per share, up from its initial range in the low-to-mid $20s. It raised nearly $1.9 billion at a valuation of around $7.7 billion. The geothermal energy company started trading on the Nasdaq today (May 13), with its shares initially popping 33% to more than $36 per share. It's one of three big IPOs this week.

Here's a look at everything you need to know about the newest energy stock.

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What Fervo Energy does

Fervo Energy develops advanced geothermal systems that generate stable, carbon-free energy. Geothermal is a more dependable form of renewable energy because it doesn't experience the weather-related intermittency issues of wind or solar. Fervo employs enhanced geothermal systems (EGS), a technology that helps address the scalability issues that have long been a roadblock to geothermal. It also uses subsurface monitoring tools, including AI-enhanced fiber optic sensing. Fervo uses a technique similar to shale drilling to make areas more conducive to geothermal energy generation.

The company is building its flagship Cape Station project in Utah. It will be the world's largest next-generation geothermal project when it starts generating power later this year. The project should generate 500 megawatts of power upon reaching full-scale production by 2028. It has fully contracted that power to Southern California Edison, Shell, and other power purchasers. While its initial geothermal project is expensive (about $7,000 per kilowatt to build), the company aims to bring future facility costs down to around $3,000 per kilowatt, roughly the same as a gas-fired power plant. That would be a game changer as the geothermal plant wouldn't have fuel costs or produce carbon dioxide emissions.

Big-time backers

The promise of Fervo Energy's approach has drawn some notable early backers. Bill Gates was an early investor in the company. Additionally, U.S. oil and gas giant Devon Energy (NYSE: DVN) made a strategic investment in the company. As part of the investment, Devon, a pioneer of the shale revolution, partnered with Fervo to provide it with expertise in horizontal drilling, multi-stage well completion, and distributed fiber-optic sensing to help advance its capabilities. Fervo has also worked with leading U.S. oil field services companies Helmerich & Payne and Liberty Energy to gain more expertise in shale drilling techniques.

Additionally, tech titan Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) has invested in Fervro Energy. The company's Google subsidiary is looking to partner with geothermal companies to provide it with carbon-free power for its data center operations. Fervo's geothermal solutions could be ideal for data center applications because they provide the 24/7/365 baseload power these energy-hungry facilities need. Alphabet has been securing power from multiple sources, including a 3-gigawatt hydropower deal with Brookfield Renewable and nuclear and natural gas power partnerships with NextEra Energy.

Should you buy Fervo Energy stock?

Fervo Energy wants to unlock the full potential of geothermal energy. That carbon-free power source could help the U.S. meet the surge in power demand from AI data centers. It could drive significant growth for Fervo in the future as it builds more geothermal projects. However, investors might want to wait to see if this hot IPO cools off before buying shares, given its surging valuation. It's certainly an interesting energy stock to add to your watch list.

Matt DiLallo has positions in Alphabet, Brookfield Renewable, Brookfield Renewable Partners, and NextEra Energy. The Motley Fool has positions in and recommends Alphabet and NextEra Energy. The Motley Fool recommends Brookfield Renewable, Brookfield Renewable Partners, and Helmerich & Payne. The Motley Fool has a disclosure policy.