Many have called data the new oil. The digital economy runs on data. Information is crucial to digital technology, especially artificial intelligence (AI) applications. And that means the world needs more infrastructure to support the movement and processing of data.
“We’re in a once-in-a-generation investment cycle for data centers at the moment,” stated Felix Chan, a speaker at Brookfield Infrastructure‘s (NYSE: BIPC)(NYSE: BIP) annual investor day last year. Chan noted that companies need to invest over $1 trillion in the next 10 years in data centers to support the growth in data consumption, driven in part by generative AI. Brookfield Infrastructure has invested heavily in building a leading data infrastructure platform, positioning it to capitalize on this opportunity. That makes it a top stock to buy now to play the coming AI-driven data center boom.
AI runs on data
Udhay Mathialagan, who leads Brookfield’s global data center platform, stated at the same event:
AI is everywhere and machine learning and AI growth has just exploded. There’s lots of theories, lots of views on how AI will manifest itself, how it’ll be deployed. But the one thing, the one plain truth is the only way AI can be delivered is through physical data infrastructure on the ground. And what that means is data centers and lots of them.
AI needs data centers to thrive because the technology requires a tremendous amount of computing power and data storage. That computing power comes from specialized semiconductors developed by companies like Nvidia (NASDAQ: NVDA). AI apps, including the uber-popular AI ChatBot ChatGPT by OpenAI, widely use its H100 graphics cards. Companies are buying these chips hand-over-fist to power their AI ambitions. Nvidia’s data center business generated $18.4 billion in revenue during the fourth quarter, a staggering 409% increase from the prior year.
The AI boom is also driving companies to secure more space in data centers to house the technology used to train AI models and generate outputs. That’s fueling a building boom that could last more than a decade. According to Brookfield’s Chan, the world needs six gigawatts (GW) of additional data center capacity over the next three years to meet expected data demand. That’s staggering, considering there was only 7.4 GW of capacity online at the end of last year.
Building a leading data center platform
Brookfield Infrastructure has quietly positioned itself to capitalize on the data and AI boom over the past few years. It entered the data center market in 2019. The global infrastructure operator spent $1 billion to buy a portfolio of data centers from AT&T in the U.S., creating the Evoque Data Centers platform. The company also formed a joint venture (JV) with data center REIT Digital Realty that year to acquire the Ascenty data center platform in South America and has since formed another JV with Digital Realty to develop data centers in India.
The company invested in three more data center platforms last year:
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Compass Datacenters: The company partnered with an existing investor to acquire Compass in a $5.5 billion deal. Compass develops mega data center campuses in North America.
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Data4: It entered the European data center market by acquiring Data4 for $3.8 billion. The company operates 31 data centers across six European countries.
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Cyxtera: Brookfield used its Evoque platform to acquire 40 data center sites out of bankruptcy from Cyxtera. It also purchased the associated real estate of several sites from third-party landlords, including Digital Realty.
Brookfield now owns interests in over 135 operating data centers across the Americas, Europe, and Asia Pacific. They have 750 megawatts (MW) of critical load capacity.
On top of that, the company has contracts to support constructing another 900 megawatts of data center capacity over the next three years. That pipeline gives Brookfield a clear line of site to grow its data center platform’s funds from operations (FFO) by 2.5 times over the next three years. Meanwhile, it has the potential to develop over 2.3 GW of data center capacity over the next five years and is buying more land to support future development. For example, following discussions with a customer about their growth ambitions, Brookfield Infrastructure acquired a strategic land site in Milan during the fourth quarter of last year to support over 60 MW of additional capacity.
A high-powered growth driver
Brookfield Infrastructure’s data center investments could pay big dividends for investors over the coming years. They help support the company’s view that it can grow its FFO per share by more than 10% annually. That should give it the power to increase its already attractive dividend (currently yielding 4.7%) by 5% to 9% per year. Add the dividend income to its earnings growth rate, and Brookfield could generate total annual returns in the mid-teens, with additional upside as the market starts pricing in Brookfield’s AI-powered growth potential. These factors make it a great AI stock to buy and hold for the long haul.
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Matt DiLallo has positions in Brookfield Infrastructure, Brookfield Infrastructure Partners, and Digital Realty Trust. The Motley Fool has positions in and recommends Digital Realty Trust and Nvidia. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.
A Once-in-a-Generation Investment Opportunity: 1 AI Stock to Buy Now was originally published by The Motley Fool
