Texas Pacific Land Corporation (TPL) Deep Research Report: Too Expensive After the AI Boom?

Texas Pacific Land Corporation (TPL) attracts both oil-and-gas specialists and long-term compounder hunters. It is asset-light, wildly profitable, and sits on a uniquely strategic position in the most important oil basin in the United States. Yet at the same time, the stock’s valuation has run well ahead of our estimate of intrinsic value, buoyed by AI and data-center enthusiasm that may take years to fully prove out.

From our deep-dive into recent SEC filings and industry sources, our stance is clear: TPL is a structurally excellent business, but at today’s price, it screens as a potential sell or trim, not a buy, for disciplined value investors.

According to the company’s latest 10-K, TPL controls roughly 882,000 surface acres and about 207,000 net royalty acres, primarily in the Permian Basin, plus additional non-participating royalty interests over roughly 456,000 acres. 2024 10-K It earns money without drilling a single well, and instead collects royalties, water revenues, easements, and land sales income from operators that develop the land. This model has delivered net profit margins in the mid-60% range in recent years, a level rarely seen outside elite software or luxury franchises, as highlighted by Macrotrends.

Yet the market is already paying up for this quality. Current pricing around $899 per share implies a P/E of ~43x and EV/EBITDA of ~36x, with the stock trading roughly 228% above a reference DCF value of about $274 per share. For us, that mismatch between quality and valuation is the crux of the thesis.

In this piece, we’ll walk through why we respect TPL’s business, where we see real long-term optionality, and why we still think the risk/reward skews toward a rebalancing or trimming stance at current levels.

What Does Texas Pacific Land Actually Do?

TPL’s story stretches back to 1888, when it was created to hold lands from the Texas and Pacific Railway. It reorganized as Texas Pacific Land Corporation in 2021, but the core economic engine hasn’t changed: monetize a huge Texas land base without taking on operating risk.

According to the 2024 10-K and 2025 10-Q:

• TPL owns about 882k surface acres as of September 30, 2025, plus substantial royalty and NPRI (non-participating royalty interest) acreage. 2025 10-Q
• It does not drill or operate wells. Instead, it earns:
• Oil and gas royalties
• Water sales and produced-water royalties
• Surface rents, easements, and occasional land sales
• Operations are reported in two segments:
• Land and Resource Management (royalties, easements, land)
• Water Services and Operations (sourcing, infrastructure, treatment, disposal)

The water segment has become a meaningful contributor. In 2024, TPL generated about $150.7 million in water sales, $104.1 million in produced-water royalties, and $10.2 million in surface income from water-related activities alone. That diversification matters because it adds another high-margin leg to the royalty stool, all built on the same land base.

All of this is underpinned by the Permian Basin, one of the premier oil and gas basins in the world, spanning roughly 86,000 square miles and representing a major share of U.S. production, as described in Permian Basin background. Horizontal drilling and fracking transformed TPL’s legacy grazing acreage into a royalty powerhouse over the last decade. Wikipedia – Texas Pacific Land

Why Is TPL Considered a High-Quality Moat Stock?

From a business quality standpoint, TPL checks many of the boxes we look for in durable compounders.

Irreplaceable Land and Royalty Position

TPL’s moat is rooted in scarcity: there simply aren’t many other entities that own this much contiguous, strategic Permian acreage. Management describes the company as the largest publicly traded mineral royalty-focused organization and, according to The Land Report coverage via The Real Deal, the largest landowner in Texas. 2024 10-K

That scale advantage has several implications:

• Operators are already invested across TPL’s acreage, making it hard to substitute away.
• The company can layer multiple revenue streams (royalties, water, easements) on the same surface footprint.
• Its water infrastructure benefits from this network effect: pipelines, sourcing, and disposal assets serve activity across large swaths of land.

As the 10-K and Macrotrends data show, TPL’s net margins have sat in the mid-60% range in recent years. 2024 10-K; Macrotrends. Those economics are the hallmark of a business that can take price over time and doesn’t need to pour capital back into the ground just to stand still.

Asset-Light, High-Margin Royalty Model

Unlike E&Ps that must constantly reinvest capex to replace reserves, TPL lets others spend the drilling dollars. Its royalty interests require no operating capital from TPL to generate revenue. That’s why the company has:

• Minimal sustaining capital expenditures
• High free cash flow conversion
• The ability to fund both acquisitions and generous capital returns

Cash from operations was around $491 million in 2024 and roughly $432 million for the first nine months of 2025. 2024 10-K; 2025 10-Q. Over that 9M 2025 period, TPL still had over $531.8 million in cash and equivalents and essentially no net debt. 2025 10-Q Net debt/EBITDA sits at roughly -0.65x, meaning a net cash balance sheet, and interest expense is essentially immaterial 2024 10-K.

In our view, this combination of ultra-high margins, asset-light economics, and a net cash balance sheet is exactly what value investors want to own if the price is right.

Management and Capital Allocation

Our read of the 10-K suggests management’s incentives are reasonably aligned with shareholders:

• The CEO acts as the chief operating decision maker and evaluates segments on net income. 2024 10-K
• Executive pay is tied to:
• Adjusted EBITDA margin
• Free cash flow per share
• ESG and ROIC-related goals 2024 10-K

Capital allocation has been both aggressive and shareholder-friendly:

• In 2024, TPL paid about $347.3 million in dividends and repurchased around $29.2 million in stock. 2024 10-K
• At the same time, it deployed more than $395 million into Permian mineral acquisitions and about $45 million into surface and water assets in Martin County. 2024 10-K

We do note some governance watchpoints. A Culberson County acquisition involved related-party elements and required Audit Committee oversight, and the company has faced activist battles in the past. 2024 10-K; Wikipedia – Texas Pacific Land Nothing in the filings screams “red flag” to us, but we think governance deserves ongoing attention given the scale of capital being deployed.

Is TPL Stock a Buy in 2026?

For many investors, this is the key question. The short answer from our team: we don’t think so at today’s price.

Valuation: Quality at a Steep Price

Let’s start with where TPL trades today:

• Stock price: about $898.86 per share
• P/E: roughly 43x
• EV/EBITDA: around 35.7x
• Market cap: about $20.7 billion

These are growth-stock multiples on a business whose earnings are still very much tied to a commodity cycle and a single basin.

Our DCF reference value is around $274 per share. That implies the stock is trading at roughly 3.3x that modeled intrinsic value—about a 228% premium. We’re not wedded to any single DCF number, but the gap is simply too wide for us to dismiss.

Put differently: the market is already pricing in either (a) much higher long-term free cash flow than history suggests, or (b) far less risk than we think is realistic, given TPL’s exposure to oil prices, Permian volumes, and regulation.

What Would Make Us More Constructive?

We’re not dogmatic. There are scenarios where TPL could move from “potential sell/trim” to “wait” or even “potential buy”:

• Valuation reset: A derating toward a mid-teens P/E, or a long stretch where TPL consistently generates $600–700 million+ in annual free cash flow, would meaningfully improve the margin of safety.
• De-risked growth optionality: Signed, long-term, high-margin contracts around produced-water recycling or AI/data-center land and water deals—without heavy TPL capex—could justify a structurally higher multiple.
• Clearer AI and water economics: Evidence that these initiatives can add stable, recurring cash flows on top of the royalty base, rather than just cyclically hype-driven upside.

Until then, we think disciplined investors should recognize they are paying full freight—and then some—for a high-quality but cyclical asset.

How Dependent Is Texas Pacific Land on the Permian and Fracking?

TPL’s strengths and its biggest risks share the same root: concentration in the Permian Basin and in U.S. shale economics.

Basin and Commodity Concentration

All major revenue streams—royalties, water, and surface—are directly tied to Permian oil and gas activity. If operators slow drilling, reduce completion intensity, or shut in production, TPL’s volumes fall.

The 2025 10-Q shows that for the nine months ended September 30, 2025:

• Net income rose to about $358 million from $336 million a year earlier.
• Operating cash flow increased to roughly $432 million from $364 million. 2025 10-Q

This growth came despite lower average WTI oil prices, partly offset by higher Henry Hub gas prices (up ~64%) and ongoing development activity. 2025 10-Q But the same sensitivity can work in reverse during down cycles.

The Permian Basin remains one of the most competitive basins globally, thanks to its geology and infrastructure, as outlined in Permian Basin overview. Still, this is structurally a cyclical, commodity-exposed ecosystem.

Regulatory and Environmental Risk

Fracking in the United States, and particularly in Texas, is under continuous environmental scrutiny for:

• Groundwater contamination
• Methane emissions
• High water usage and disposal risks

The fracking in the U.S. overview makes clear that regulatory tightening is an ever-present possibility. For TPL, more stringent rules on fracking or water disposal could translate into:

• Higher costs for operators (potentially limiting drilling)
• Reduced water services demand
• Tighter rules around produced-water reuse and disposal

In our risk framework, a structural downshift in Permian activity—caused by policy, prices, or environmental constraints—is one of the clearest thesis-breakers for TPL. 2025 10-Q; Wikipedia – Fracking

Infrastructure and Basis Risk

TPL’s economics are also affected by infrastructure bottlenecks, especially in natural gas takeaway. The company’s 2025 10-Q notes the persistent negative Waha basis—local gas prices depressed due to limited pipeline capacity. 2025 10-Q If this persists or worsens, it could:

• Pressure realized prices for operators
• Discourage drilling in gas-weighted areas
• Introduce more volatility into TPL’s realized royalty streams

None of this dismantles the moat, but it does argue for a margin of safety in valuation that we simply don’t see at current levels.

Will AI and Data Centers Deliver Long-Term Growth for TPL?

One of the reasons TPL’s stock exploded higher in 2024 was the AI and data-center narrative. West Texas, with its abundant land and access to power, is being positioned as an emerging AI and digital infrastructure hub. The Real Deal – Nov 2024

What’s Actually Happening on the Ground?

TPL is not just riding headlines; it is actively positioning itself:

• The company has entered a partnership with Eric Schmidt–backed Bolt Data & Energy that includes:
• A $50 million TPL investment
• Land access rights
• Equity and warrants in the partner entity

This is aimed at making TPL a key landlord and water provider to large-scale AI data centers in West Texas.The Real Deal – Dec 2025

• Management is also piloting an energy-efficient desalination and treatment process with a large industrial technology partner to recycle produced water into fresh water suitable for discharge or reuse, targeting an estimated 19 million barrels/day of produced water in the Permian. 2024 10-K

In our view, these moves make strategic sense. They:

• Extend the relevance of TPL’s surface and water assets beyond oil and gas
• Potentially create a long-duration, high-margin tenancy base (data centers)
• Align TPL with secular growth themes in AI and digital infrastructure

The Catch: Early-Stage and Execution-Heavy

The problem for valuation is not that these initiatives lack logic; it’s that they’re still early and unproven.

Key uncertainties we’re watching:

• Will West Texas truly become a durable AI/data hub, or is this a cyclical boom?
• Can TPL secure long-term, high-credit-quality tenants with attractive lease and water economics?
• How much capital will TPL need to deploy to enable these projects (power interconnects, infrastructure, etc.)?
• Will produced-water recycling be permitted and adopted at large enough scale to generate material revenues?

The Real Deal coverage and TPL’s filings both highlight the promise but also the risk that overbuilding, power constraints, or weaker tenant demand could impair returns. 2024 10-K

Our stance: investors are already paying a substantial premium for this optionality. Until we see signed, contracted, cash-producing deals at scale—with limited TPL capex—we are not comfortable ascribing the premium multiple the market currently does.

Financial Health and Cash Flow: Strong but Cyclical

From a balance sheet and cash flow perspective, TPL is in excellent shape.

Free Cash Flow Trend

The free cash flow data embedded in our analysis show a generally rising trend since 2022, with volatility typical of commodity-linked businesses:

• Quarterly FCF has ranged from around $88 million to $173 million over the 2022–2025 period.
• EPS per quarter has trended upward as well, reaching into the mid-$5s by 2025.

The 2025 10-Q confirms that for the first nine months of 2025, operating cash flow was about $432 million, up from $364 million for the same period in 2024. 2025 10-Q Importantly, this growth occurred while the company:

• Invested about $137.6 million in acquisitions and fixed assets in 9M 2025
• Returned roughly $134.2 million to shareholders via dividends (~$111 million) and buybacks (~$8.4 million). 2025 10-Q

This is a picture of a business that can both grow and return capital simultaneously—one of the strongest signals we look for.

Balance Sheet Strength

TPL’s capital structure is conservative:

• Cash and equivalents: about $531.8 million as of September 30, 2025
• Minimal debt outstanding under a new credit agreement
• Net debt/EBITDA: roughly -0.65x (net cash). 2025 10-Q

Interest coverage is essentially moot because interest expense is so low. 2024 10-K In a downcycle, this balance sheet provides real downside protection and optionality to:

• Buy back stock at more attractive prices
• Acquire distressed mineral or surface assets
• Fund selective infrastructure around water or data centers

From a purely financial health perspective, TPL passes with flying colors.

How We’d Think About TPL in a Portfolio

For investors who already own TPL, we see this as a classic “great business, stretched valuation” situation.

From our perspective:

• The core business—Permian royalties plus integrated water and surface—is exceptional.
• The balance sheet is pristine and capital allocation has been largely shareholder-friendly.
• AI/data-center and water-recycling initiatives offer upside, but also introduce new forms of execution, regulatory, and cycle risk.
• At ~43x earnings and ~36x EV/EBITDA, with the stock trading at about 3.3x a DCF anchor, the margin of safety is thin.

That naturally leads us to a potential sell/trim judgment rather than a buy:

• If TPL were a small position that has ballooned due to past gains, we would consider trimming back to a target weight.
• If it is a core holding bought at much lower prices, rebalancing might lock in gains while still respecting the business quality.
• For new money, we’d put TPL firmly on the watchlist and wait for either a significant pullback or for tangible, contracted evidence that AI and water initiatives have materially raised normalized earnings power.

For investors who want to scale this type of work across multiple names, using a platform like DeepValue to parse 10-Ks, track FCF, and standardize risk frameworks can be a strong complement to traditional screeners. Read our AI-powered value investing guide to see how we think about combining deep fundamental work with research automation.

Final Take: A Superb Franchise, But Not a Bargain

Pulling everything together, our view on Texas Pacific Land is nuanced but firm:

• Business quality: Outstanding. A unique, asset-light royalty and surface/water platform in the heart of the Permian with mid-60% net margins and a net-cash balance sheet is precisely what long-term investors dream about. 2024 10-K; Macrotrends
• Growth drivers: Solid near-term via continued Permian development and water services; intriguing longer-term via produced-water recycling and AI/data-center land and water deals. These newer vectors could extend the asset life and diversify revenues if executed with discipline. 2024 10-K; The Real Deal – Dec 2025
• Risks: High basin and commodity concentration, regulatory risk around fracking and water usage, infrastructure and basis risk, and governance watchpoints, especially as the company leans into new growth areas. 2025 10-Q; Wikipedia – Fracking; Wikipedia – Texas Pacific Land
• Valuation: Too rich for our taste. Trading at around 43x earnings and ~36x EV/EBITDA, and more than triple a DCF reference value, the stock offers little cushion against downside scenarios in oil prices, Permian volumes, or AI enthusiasm.

For us, that adds up to a “potential sell” or at least a “trim/rebalance” call for existing holders, and a “wait patiently” stance for new investors. A better entry point—or better yet, clear, contracted proof that AI/data-center and water recycling are game-changing cash generators—could change that equation. But we’re not there yet.

Sources

• Texas Pacific Land 10-K (2025)
• Texas Pacific Land 10-Q (Q3 2025)
• Permian Basin (North America) – Wikipedia
• Texas Pacific Land Corporation – Wikipedia
• Fracking in the United States – Wikipedia
• Texas Pacific Land – Profit Margins (Macrotrends)
• Texas Pacific Land – Revenue History (Macrotrends)
• Texas Pacific Land – Net Income History (Macrotrends)
• The Real Deal – Texas Pacific Land Corp’s stock surges 230% thanks to AI (Nov 2024)
• The Real Deal – Eric Schmidt–backed firm teams up with Texas Pacific (Dec 2025)
• The Real Deal – Top 10 Texas landowners (June 2025)