Picture this: you’re driving down a dusty two-lane road somewhere between Midland and Pecos. Pumpjacks nod lazily in the heat shimmer, the same way they have for decades. Then, out of nowhere, you spot rows of gleaming white buildings the size of aircraft hangars, surrounded by forests of cooling towers and new substations humming with electricity. That, my friends, is the new West Texas – and one very old company is quietly collecting royalties from almost every part of it.
I’ve been following Permian Basin names for years, but when I saw the latest note from KeyBanc on Texas Pacific Land (NYSE: TPL), I actually did a double-take. A 150-year-old land trust – basically the largest private landowner in Texas – could be one of the biggest indirect winners of the AI infrastructure explosion? Color me intrigued.
Why Texas Pacific Land Is Suddenly in the Sweet Spot
Let me break it down plain and simple. Texas Pacific Land doesn’t drill wells, doesn’t run pipelines, and doesn’t build servers. It just owns the surface (and a big chunk of the royalty interests) across roughly 882,000 acres dead-center in the Permian Basin. Every time someone wants to do pretty much anything on that land – drill an oil well, lay a water pipeline, bury a power line, or plop down a 500-megawatt data center – TPL gets paid.
And right now, West Texas is turning into ground zero for the next leg of the AI boom.
The Three Revenue Rivers That Never Dry Up
Most investors still think of TPL as an oil & gas royalty story – and that part is still massive. But the revenue mix has been quietly evolving into something much more resilient.
Here’s what the land actually collects money from today:
- Oil & gas royalties – the classic cash cow (1/16th or 1/8th royalty on huge swaths of the Permian)
- Water sales and disposal – fracking a single well can use 500,000 barrels of water; TPL sells sourced water and charges for disposal of produced water
- Surface use agreements – caliche for roads, land for tank batteries, easements for pipelines and power lines
- Emerging infrastructure – power plants, data centers, solar farms, carbon capture hubs, even bitcoin mining pods
That last bullet is the one that should make growth investors sit up straight. Analysts now openly talk about TPL as a pick-and-shovel play on the AI build-out, except the shovel is almost a million acres of desert with no debt and a fortress balance sheet.
Data Centers Need Three Things TPL Has in Abundance
Hyperscalers aren’t building campuses in downtown Austin for a reason. They need cheap power, tons of water for cooling, and huge contiguous plots of land far from hurricanes and earthquakes. West Texas checks every box – if you can solve the water part.
Enter Texas Pacific Land.
“TPL sits at the literal crossroads of traditional oil/gas activity and the imminent data center and power-gen buildout occurring in West Texas and collects royalties from much of the activity occurring in the region.”
– KeyBanc analyst Tim Rezvan, December 2025
The company has already signed multiple surface leases for natural-gas-fired power plants (the exact kind Microsoft, Amazon, and Google are contracting for their AI training clusters). Each new plant needs transmission corridors, water pipelines, and road access – all things that cross TPL surface and trigger payments.
But the really fascinating move? TPL is spending $25 million to build its own brackish-water desalination plant near Orla, Texas. When that comes online in late 2026, it could supply treated water directly to industrial users – including data center cooling towers – at premium pricing. In a region regularly gripped by drought, that’s pure pricing power.
A Balance Sheet Most Tech Companies Would Kill For
Here’s something you rarely see in the middle of a supposed growth story: TPL has zero debt and a net cash position. The company only opened its first credit facility in October – mostly just to have dry powder, not because it needed it.
In my experience, when management teams in their 40s run a cash-gushing business with no leverage and a long-term horizon, good things tend to happen. KeyBanc made the same observation – no “empire building” smell here, just disciplined allocation toward the highest-return opportunities.
That discipline shows up in the dividend. TPL pays a variable dividend that has grown from $16 per share in 2021 to an expected $20+ in 2025 while still sitting on hundreds of millions in cash for projects like the desalination plant.
Valuation – Expensive or Actually Reasonable?
Let’s address the elephant in the room. At roughly $850/share today, TPL trades at about 34× forward earnings and yields only 0.5%. On the surface, that looks rich for a “land company.”
But dig a little deeper and the picture changes. Free cash flow per share is expected to grow 15-20% annually over the next three years even if oil stays flat – driven entirely by water and surface revenue. Add in any material data-center or power-plant deals and the growth rate could easily move into the mid-20s.
KeyBanc’s $1,050 target implies roughly 23% upside from here, but I wouldn’t be shocked to see that number move higher as more analysts wake up to the non-oil growth drivers.
Risks You Shouldn’t Ignore
No investment is perfect. A few things keep me up at night with TPL:
- Oil price collapse would still hurt royalty income (though water and surface revenue now act as a natural hedge)
- Execution risk on the desalination plant – $25 million isn’t huge in context, but delays or cost overruns would sting
- Concentration – everything is in one geographic region
- Valuation multiple could compress if the market decides “land trusts” shouldn’t trade at tech multiples
That said, the risk/reward still feels heavily skewed to the upside, especially with a management team that has proven it won’t overpay or over-leverage.
The Bottom Line
Sometimes the best way to play a megatrend isn’t to buy the flashy growth stock everyone is chasing. Sometimes it’s the 150-year-old trust that owns the dirt underneath the trend – and gets paid no matter who wins the race.
Texas Pacific Land might just be that quiet compounder hiding in plain sight. With AI-driven power demand expected to double Texas load growth over the next decade, and water becoming the scarcest resource of all, TPL’s million-acre moat looks wider than ever.
I’m not saying it will outperform Nvidia next year. I am saying that twenty years from now, when historians write about who profited from the AI infrastructure build-out, a certain West Texas landowner first created in 1888 might warrant more than a footnote.
And honestly? That’s the kind of story I love finding.
