For financial advisers and professional investors only – not for distribution to retail investors.
09 August 2024
James Maydew
The real assets powering the proliferation of AI present unique investment opportunities.
Key points
- Infrastructure and real estate offer investors alternative entry to the AI thematic
- A seismic shift in demand for real assets is underpinned by the proliferation in AI
- Find out more about the Macquarie Global Listed Real Estate Fund and the Macquarie International Infrastructure Securities Fund
In an investment world captivated by digital transformation, the significance of the physical infrastructure underpinning the virtual world can sometimes be overlooked.
This has never been more apparent than in the current mania for artificial intelligence, which has propelled equity markets to all-time highs in a wave of technological breakthroughs and investor excitement.
Beneath the rapid proliferation of generative AI lies a seismic shift in demand for real assets – from energy generation and transmission to telecommunications infrastructure, water resources, and data centres.
This shift is reshaping real estate and infrastructure markets as the world’s biggest technology firms scramble to build out capacity.
The heightened demand is creating unique investment opportunities.
Generative AI systems require massive amounts of data storage and processing power and run on systems that consume vastly more electricity than traditional software applications.
The International Energy Agency (IEA) projects data centre power consumption to rise at around a 15 per cent compound annual growth rate between 2022 and 2026, implying a doubling of energy consumption globally. The IEA also expects data centre energy consumption in the US to move from 4 per cent of national grid capacity to 6 per cent over the same period1.
Essential infrastructure supports the delivery of this increasing demand from generative AI: the data centres housing AI rely on sophisticated cooling systems to manage the heat from their high-power computing processes; manufacturing the semiconductors that run AI applications requires vast water resources; and the data generated by AI to end users’ phones and PCs requires well-located telecommunications towers.
For investors, the result of this new gold rush is a boom in demand for the real assets that form the backbone of the new economy, just as ports, airports and hospitals underpinned the economy of the past.
Why real assets?
Infrastructure and real estate assets are uniquely positioned to capitalise on the generative AI boom, offering durable, long-term returns with relatively low risk.
Demand for real estate assets like data centres and telecommunications is growing as AI advances and data requirements increase. Importantly, the tenants for these types of properties can be among the most stable and well-capitalised businesses in the world as they include large hyperscalers such as Amazon or Microsoft and large global telecommunication providers.
Meanwhile, infrastructure assets are typically regulated under frameworks designed to provide stable and consistent returns on equity – incremental investment is rewarded with predictable returns.
Real estate opportunities
Despite growing demand, US data centre assets remain reasonably priced relative to the broader real estate market.
Partly that is due to the perceived complexity of the asset class. Data centres vary widely in how they are managed – some landlords take a hands-off approach and leave tenants to manage their infrastructure; others provide comprehensive services including power, cooling, and physical security, and lease space to multiple tenants.
Regardless of operating model, data centres are a critical part of the digital world and an important real estate asset.
The world is generating more data than ever before – some 129 zettabytes of data were generated in 2023, up twofold from 2019 and with a further doubling expected by 20272. Increasing AI workloads will be hosted in specialised data centres underpinning long term demand for the asset class.
Similarly, telecommunications towers are enjoying unprecedented growth. The rollout of 5G mobile data is bringing almost unlimited capacity that requires more towers, spaced more closely together.
Infrastructure opportunities
For infrastructure, the provision of energy is a leading opportunity.
Generative AI requires enormous amounts of power, and generation capacity is expected to nearly double by 2040 into an already constrained grid3.
This increased demand will drive investment across the energy infrastructure landscape, with many of the largest technology players requiring carbon-free electricity which is powering the development of renewable generation and storage. A key factor underpinning the viability of carbon-free electricity is the rapid decline in the cost of renewable power generation.
This opens opportunities for investors to fund new capacity in generation and transmission which we expect to benefit from long-term, regulated returns on multi-decade investments.
Portfolio implications
Generative AI is a critical and rapidly growing sector, with attractive investment opportunities and transformative potential.
But investors looking for exposure to the theme should consider options beyond the high-profile tech giants that are dominating market discussion.
Infrastructure and real estate offer reasonably priced, lower-risk opportunities that can offer predictable returns without the volatility likely in tech stocks.
A portion of the Macquarie Global Listed Real Estate Fund and the Macquarie International Infrastructure Securities Fund is invested in companies with exposure to real assets that are powering the growth in GenAI, including data centres, and the electric utilities sector, including power generation, electricity transmission, distribution and storage.
Importantly, these real assets are critical to the ongoing digital transformation and will remain in demand as AI technology continues to develop.
Author
1 IEA, 2024
2 IDC, 2023-2027 Worldwide IDC Global DataSphere Forecast, 2023
3 NextEra Energy, Investor Conference 2024
The Macquarie Global Listed Real Estate Fund is designed for consumers who:
- are seeking capital growth
- are intending to use the Fund as a minor allocation or satellite allocation within a portfolio
- have a minimum investment timeframe of five years
- have a high or very high risk/return profile for that portion of their investment portfolio, and
- require the ability to have access to capital within one week of request.
The Macquarie International Infrastructure Securities Fund is designed for consumers who:
- are seeking capital growth and regular income
- are intending to use the Fund as a minor allocation or satellite allocation within a portfolio
- have a minimum investment timeframe of five years
- have a high or very high risk/return profile for that portion of their investment portfolio, and
- require the ability to have access to capital within one week of request
Important information: The Target Market Determination (TMD), available at macquarie.com/mam/tmd, includes a description of the class of consumers for whom the Fund is likely to be consistent with their objectives, financial situation and needs.
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