The Strangest AI Stock of 2026 Doesn't Make Chips. It Owns Land in Texas.

Texas Pacific Land (NYSE: TPL) doesn't make a single chip, write a line of code, or run a data center. It owns dirt -- about 880,000 acres of it, mostly spread across the Permian Basin of West Texas. And yet it has been one of the market's best-performing stocks of 2026, with shares up about 38% year to date, even after pulling back from a gain of about 91% at their late-February peak. That leaves the S&P 500's roughly 7% rise far behind.

So how does a land-and-royalty company become one of the year's hottest plays on artificial intelligence (AI)? And can the run last?

Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »

Texas Pacific Land traces its roots to an 1880s railroad bankruptcy that left it holding millions of acres of Texas land. Today, it is one of the largest landowners in the state, and it makes money in two main ways. Its land and resource management business collects oil and gas royalties from the energy companies that drill on its acreage, plus fees for the pipelines, roads, and power lines that cross it. Its water business, Texas Pacific Water Resources, sells water to those same drillers and earns royalties on the water they pull up alongside oil.

The key is that the company doesn't drill or operate wells itself. It owns the ground and collects the payments -- a model that produces enormous margins and demands little spending. In 2025, Texas Pacific Land generated $798 million in revenue and $481 million in net income, along with $498 million in free cash flow -- all while carrying no debt. Oil and gas royalties supplied about $412 million of that revenue, and the water business added about $308 million.

The momentum carried into this year. First-quarter revenue rose 21% year over year to a record $237 million, and earnings per share climbed to $2.07 from $1.75 a year earlier.

The same West Texas acreage that sits on top of oil and gas offers the three things an AI data center needs most: cheap land, water for cooling, and access to power. The Permian produces enormous volumes of natural gas, and developers are increasingly building their own gas-fired power plants next to data centers rather than waiting years to plug into the grid.

Texas Pacific Land owns the ground beneath much of that opportunity. In June, it agreed to provide surface acreage and brackish groundwater to Chevron for Project Kilby, a large power generation facility that will support a customer data center in Reeves County, Texas. And late last year, it invested $50 million in Bolt, an AI infrastructure company chaired by former Google chief executive Eric Schmidt, taking an equity stake and the right to supply water to Bolt's projects. Further, in Q1, it agreed to sell a parcel for about $43 million, paid out over roughly 20 years, tied to a separate data center and power project, along with a water supply agreement.

"Virtually every major hyperscaler and AI lab are evaluating large-scale plans in Texas," CEO Tyler Glover said on the company's first-quarter earnings call.

It's easy to see why investors may get excited about the stock. Texas Pacific Land controls a scarce yet significant footprint in one of the few regions with cheap land, water, and power in one place, making it a great value proposition for data centers.

But it's important to remember what the core business still is. The deals signed so far for data centers are small compared with the company's primary revenue sources, which are mostly oil and gas royalties, as well as water sales tied to drilling. And those royalties move with energy prices, which can be volatile.

At about $396 a share, the stock trades at about 54 times earnings -- a steep multiple that already builds in years of growth from data centers that have only begun to contribute. Yes, the land, water, and power beneath the thesis are valuable, and the AI build-out gives those assets a new source of demand beyond drilling. But at this valuation, much of that future is already priced in, and the stock's 2026 gain may have run ahead of what the data center land business can deliver anytime soon.

I'd want a cheaper entry point before buying in.

Before you buy stock in Texas Pacific Land, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Texas Pacific Land wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $398,052!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $1,181,688!*

Now, it's worth noting Stock Advisor's total average return is 892% — a market-crushing outperformance compared to 205% for the S&P 500. Don't miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.

The Strangest AI Stock of 2026 Doesn't Make Chips. It Owns Land in Texas. was originally published by The Motley Fool