NiSource's Earnings Stumble Obscures Capex Conviction

Equity Financing Locks in the Capex Pathway: NiSource's $1.5B ATM Program De-Risks Credit Rating Preservation#

The Complete Financing Architecture Emerges#

The announcement on October 31 that NI has established a $1.5 billion at-the-market (ATM) equity issuance program through 2028 represents the final piece of the company's multi-decade capex financing puzzle. Over the preceding 48 hours, the company had sequentially announced third-quarter earnings (October 29), unveiled a $28.0 billion capex plan through 2033, received regulatory approval for its GenCo subsidiary model, and secured a tier-one engineering and procurement contractor (Zachry Group) for its combined-cycle generation project. The ATM program, arriving on October 31, completes this narrative arc by providing an explicit, programmatic source of equity capital that management will deploy over the next 30 months. The sequence of announcements—regulatory approval, contractor engagement, and now equity financing—reveals a company that has methodically de-risked its transformation from a constrained utility into a hybrid data centre operator. For institutional investors, the ATM program is the proof point that management is not merely projecting ambition but is committing shareholder capital to the execution pathway.

The $1.5 billion ATM program through 2028 translates to approximately $500 million in annual equity issuance capacity, representing roughly 5 to 6 percent of NiSource's projected total capex during that window. This equity allocation is material but disciplined: management is not attempting to fund the entire $28.0 billion capex plan through equity, which would create punitive dilution and likely trigger credit rating downgrades. Instead, the ATM program signals that management is prepared to raise equity selectively to preserve an investment-grade credit rating while funding the bulk of capex through operational cash flow, utility-backed debt markets, and regulatory rate recovery mechanisms. This financing architecture reflects a sophisticated understanding of the credit rating constraints that bind all regulated utilities: firms that lose investment-grade status face funding costs that increase by 300 to 500 basis points, creating a negative feedback loop that is nearly impossible to escape. By anchoring the ATM program to 30-month deployment window through 2028, management is signalling that the company's baseline capex can be funded through debt and cash flow, with equity raising reserved for accelerated milestones or execution optionality.

The timing of the ATM announcement—arriving within days of the Zachry contract award—is equally significant. A tier-one contractor such as Zachry will have conducted independent due diligence on NiSource's financial capacity to fund projects through completion. The contractor's willingness to engage reflects confidence that NiSource has access to capital markets and that management's financing assumptions are realistic. The announcement of the ATM program provides independent confirmation to Zachry, lenders, and the credit rating agencies that management has considered the full financing architecture and is committed to accessing capital markets as needed. For a utility undertaking its largest capex program in history, this explicit financing commitment is a material de-risking factor for all stakeholders.

The Dilution Calculus and the Consolidated EPS Commitment#

The critical question for equity investors is whether the $1.5 billion in equity issuance anticipated through 2028 is already baked into management's consolidated adjusted EPS guidance. NiSource has provided dual-track guidance: base plan adjusted EPS expected to grow 6 to 8 percent annually from 2026 through 2030, and consolidated adjusted EPS expected to grow 8 to 9 percent annually from 2026 through 2033. The 100 to 200 basis point uplift from base to consolidated is attributed entirely to data centre operations. However, the consolidated guidance does not explicitly account for the dilutive impact of the $1.5 billion ATM program. If management's $2.02 to $2.07 per share consolidated EPS guidance for 2026 assumes no incremental dilution from the ATM program, then the guidance is conservative and provides upside optionality. If the guidance implicitly assumes partial equity issuance, then the company has already discounted the dilution impact, and equity investors should expect diluted share counts to rise by 4 to 5 percent over the 2025-2028 period.

Based on the reported Q2 2025 share count of approximately 373 million shares, and assuming an average issuance price of $85 per share (approximately 20 percent below recent trading levels to reflect the probabilistic nature of ATM programs), the $1.5 billion program would result in approximately 17.6 million newly issued shares, or roughly 4.7 percent dilution. Spread over 30 months, this equates to approximately 1.6 percent annual share count dilution—a material but manageable drag on per-share earnings growth. For a company targeting 8 to 9 percent consolidated EPS growth, the 1.6 percent annual dilution still permits 6.4 to 7.4 percent per-share earnings growth if the underlying business delivers on its growth targets. This arithmetic suggests that management's consolidated EPS guidance is likely conservative and does not fully hedge for the maximum potential dilution from the ATM program.

The equity capital raising discipline embedded in the ATM program reflects management's confidence in the durability of the data centre customer relationship and the project's ability to generate cash flows sufficient to fund incremental capex. Utilities that resort to materially higher equity issuance typically face equity investor skepticism about the quality of the underlying business and the sustainability of financial metrics. By limiting the ATM program to $1.5 billion over 30 months, management is signalling that the base business is robust and that the data centre opportunity is sufficiently de-risked to fund through the traditional utility financing model. This financing discipline is a credibility marker for institutional equity investors who scrutinize capital allocation strategy as a proxy for management quality.

The Credit Rating Preservation Pathway: Debt + Equity + Cash Flow#

The regulatory framework that permits NiSource to establish GenCo as a regulated subsidiary creates a three-pronged financing pathway that should permit the company to execute on the $28.0 billion capex plan while preserving an investment-grade credit rating. The first component is operational cash flow: a utility generating $2.0 billion in operating cash flow annually can fund approximately $2.0 billion in capex from operations alone. The second component is debt capital markets access: a utility with stable regulatory cash flows and investment-grade ratings can access the utility-backed debt markets to raise $2.0 to $3.0 billion annually through senior notes and other fixed-income instruments. The third component is equity capital: the $1.5 billion ATM program provides approximately $500 million in annual equity issuance capacity, supplementing the debt and cash flow components.

This financing stack—$2.0 billion from cash flow, plus $2.5 billion from debt (midpoint of the $2.0-3.0 billion range), plus $0.5 billion from equity—totals approximately $5.0 billion in annual financing capacity, a figure comfortably above the $3.5 billion average annual capex embedded in the $28.0 billion plan through 2033. However, this calculus assumes stable regulatory treatment, uninterrupted access to capital markets, and no material increase in interest rates that would compress the utility's ability to service additional debt. The credit rating agencies will monitor NiSource's leverage ratios (net debt-to-EBITDA currently at 5.50x) intensely during the capex cycle. If the company's leverage rises materially above 6.0x, or if interest coverage ratios compress below 2.5x, the agencies may place the company on watch for downgrade. Management's implicit commitment to preserving the current credit rating through disciplined equity issuance suggests that management believes the data centre contracts will generate sufficient cash flows to manage leverage within acceptable ranges.

The GenCo regulatory approval is critical to this financing pathway because it permits the company to structure data centre capex contracts on a rate-recovery basis, de-risking the investment returns. A traditional independent power producer must finance generation assets through project-level financing or corporate debt, bearing the full demand risk and commodity price risk associated with wholesale power markets. NiSource, by contrast, can sign long-term take-or-pay contracts with data centre customers and then petition the Indiana Public Service Commission for rate-base inclusion of the generation assets. Once the assets are included in the rate base, the company recovers its capital investment through customer rates, substantially de-risking the return equation and reducing the financing risk that the credit rating agencies associate with the capex program.

The Sequential De-Risking Narrative: Regulatory + Counterparty + Financing#

The three announcements made between October 29 and October 31 tell a cohesive story of sequential de-risking that should materially reduce the execution risk premium embedded in NiSource's valuation. The first de-risking event was regulatory: the Indiana Public Service Commission's approval of the GenCo subsidiary model and the company's data centre strategy. Without this regulatory blessing, NiSource would have been unable to offer data centre customers the certainty of long-term, cost-of-service rate recovery. The regulatory approval transformed the company's pitch from "we will build generation assets and try to earn returns in competitive power markets" to "we will build generation assets dedicated to your facility and recover our capital investment through regulated utility rates." This regulatory validation is the foundation upon which the entire strategy rests.

The second de-risking event was counterparty engagement: Zachry Group's decision to contract for the engineering, procurement, and construction of the combined-cycle generation project. A tier-one EPC contractor will not engage with a client firm unless the contractor believes the project parameters are realistic, the customer relationship is creditworthy, and the financing is credible. Zachry's contractual commitment to NiSource represents external validation from a sophisticated counterparty that the company's data centre strategy has merit and that the project has genuine probability of success. For equity investors who were skeptical about the durability of an unnamed hyperscaler customer, Zachry's engagement provides comfort that independent due diligence confirms the customer's creditworthiness and the project's technical feasibility.

The third de-risking event was financing: the announcement of the $1.5 billion ATM program through 2028. Management's willingness to commit to an explicit equity issuance program signals confidence that the company can fund the capex plan without triggering credit rating downgrades or materially impairing returns to existing shareholders. For lenders and credit rating agencies, the ATM announcement confirms that management has considered the full financing architecture and is committed to accessing capital markets responsibly. For equity investors, the explicit financing commitment reduces the probability of surprise dilution announcements or emergency equity offerings at depressed valuations. The sequential nature of these three announcements—regulatory approval, contractor engagement, and financing commitment—creates a cumulative de-risking narrative that should support a material re-rating of the stock once execution begins and near-term milestones are achieved.

The Customer Concentration Risk Endures, Yet Financing Commitment Signals Management Conviction#

The Irreducible Information Asymmetry and the Financing Signal#

NiSource has not disclosed the identity of the hyperscaler customer that prompted the $28.0 billion capex escalation and the extended guidance through 2033. This silence reflects commercial best practices—data centre operators routinely demand confidentiality in utility contracts—but it creates an irreducible information asymmetry for equity investors. The undisclosed customer represents approximately $7.0 billion in capex, nearly 25 percent of the total capital plan, yet investors have no ability to independently verify the customer's creditworthiness, the contract's durability, or the probability that the customer will honor its long-term commitments. This concentration of capital in an undisclosed customer relationship is the single largest source of execution risk in NiSource's strategy.

However, management's decision to announce the $1.5 billion ATM program can be interpreted as an indirect signal of management's conviction regarding the customer relationship's durability. If the undisclosed hyperscaler were financially fragile, or if management harbored significant doubts about the customer's long-term stability, management would likely resist raising equity capital for this project. Equity investors are skeptical of investments in speculative ventures; if NiSource's data centre opportunity were perceived as materially risky, the company would face headwinds in accessing equity capital markets and would face pressure from institutional investors to de-emphasize the opportunity or scale back the capex plan. The fact that management is willing to commit to the ATM program—and that Zachry is willing to contract—suggests that both management and the contractor believe the customer relationship is durable and the project is commercially viable.

This is not definitive evidence that the customer relationship is risk-free, but it is a material signal. Credit rating agencies and equity investors should interpret the ATM announcement as implicit validation that management believes the data centre opportunity has sufficient probability of success to warrant equity capital raising. The corollary is that if the customer relationship deteriorates materially, management will likely announce a material revision to the capex plan, potentially triggering an immediate equity repricing. The ATM program, therefore, represents a commitment device: management is putting shareholder capital at risk (through dilution) to signal confidence in the underlying customer relationship.

Optionality and Diversification Pathways#

The multi-year nature of the $1.5 billion ATM program, and the extended capex guidance through 2033, imply that management expects either exceptional stability from the initial hyperscaler customer or the ability to diversify the customer base over time. Once the core generation and transmission infrastructure is constructed and operational, incremental data centre customers can be added at lower capex intensity. A second hyperscaler customer might require only 20 to 40 percent of the incremental capex that the initial customer demanded, because the core generation and transmission backbone would already be in place. This optionality creates a subtle but important upside to management's current guidance: the initial capex plan is front-loaded, but the subsequent runway for customer diversification is substantial.

Management's willingness to extend guidance through 2033—a horizon that spans multiple customer contract cycles—suggests confidence that the company will sign additional data centre contracts over time. The ATM program through 2028 provides explicit financing capacity for the initial phase of the strategy; if additional customers materialize post-2028, management may need to access equity and debt capital markets for incremental capex funding. The implicit signal here is that management sees a pipeline of data centre customers and is comfortable with a multi-decade commitment to this business line. For equity investors, this optionality is a material upside factor that remains largely unpriced in the current valuation.

Outlook#

Execution Begins, Validation Frameworks Emerge#

The October 29-31 announcement cycle has moved NiSource from "ambitious capex guidance" to "executed financing strategy." The company has secured regulatory approval for its GenCo model, contracted with a tier-one EPC firm, and committed to explicit equity capital raising. Over the next 12 to 24 months, the critical questions for equity investors will centre on execution pace and evidence of customer diversification. Zachry's mobilisation schedule will signal whether the company is on track to commission generation capacity in 2026-2027 or faces delays. Management's quarterly earnings calls will be scrutinised for updates on the pace of capex deployment, the evidence of project progress, and any commentary on the status of the undisclosed hyperscaler customer or the pipeline of potential additional data centre customers.

The 2026 consolidated adjusted EPS guidance of $2.02 to $2.07 per share is the near-term execution hurdle. This target requires that the base business delivers 6 to 8 percent growth (roughly $1.91 to $1.95 in adjusted EPS) and that early-stage data centre operations contribute $0.11 to $0.16 in incremental EPS. If Zachry mobilisation proceeds on schedule and the initial customer begins loading generation capacity in late 2026 or early 2027, this target is achievable. If construction falters or the customer delays loading, the 2026 target will be at risk, potentially triggering a sharp repricing of the stock.

For institutional equity investors, the sequential de-risking events of October 29-31 have created a critical inflection point. The narrative has shifted from "ambitious management guidance" to "funded, contracted, and regulatory-approved strategy." As tangible evidence of project advancement materializes—site mobilisation by Zachry, evidence of early construction activity, management commentary on capex spending pace—the equity market should progressively recalibrate its valuation to reflect the multi-decade earnings visibility embedded in the data centre contracts. The ATM program, while dilutive, represents management's commitment to funding this transformation responsibly and maintaining the company's investment-grade credit rating. Investors who can tolerate near-term volatility should begin to monitor quarterly updates for evidence of execution progress.

The Path Forward: Validation and Repricing#

The October 29-31 announcement cycle has provided institutional investors with a coherent narrative arc spanning regulatory approval, contractor engagement, and explicit equity financing commitment. This sequence of de-risking events should support material equity re-rating as execution begins and near-term milestones are achieved. The 2026 consolidated adjusted EPS guidance of $2.02 to $2.07 per share represents the critical near-term hurdle; achievement of this target would validate management's thesis and likely trigger multiple expansion reflecting the multi-decade earnings visibility. Conversely, failure to achieve the 2026 guidance would force material revision of the capex plan and the extended guidance through 2033, creating sharp downside risk for equity investors.

The path forward hinges entirely on execution, and the quarterly earnings cycles over the next 18 to 24 months will determine whether the ATM program proves to be a prudent financing decision or a harbinger of execution risk that the market underestimated. For equity investors with a multi-year investment horizon and tolerance for execution risk, the combination of sequential de-risking (regulatory + contractor + financing), dual-track earnings guidance, and explicit equity capital commitment create a compelling asymmetric opportunity. The ATM program, while dilutive, represents management's willingness to absorb near-term shareholder dilution in exchange for multi-decade earnings visibility. This capital discipline should be viewed as a credibility marker, not a warning sign.