Thursday 27th June 2024
Beyond Nvidia: How listed real assets can also benefit from the AI boom
You don't need to invest in the world's most expensive stocks to benefit from the AI boom, with the sector's tentacles stretching much further than the chip-making titan according to Martin Currie.
The artificial intelligence boom has split investors into two camps; the smug ones that got on board companies like Nvidia early, and the rest, who would love to own the stock but see little value in buying it at today’s inflated prices.
For the latter, however, there are other ways to benefit from the AI boom, with the real assets behind them such as property, infrastructure and utilities providing an investment avenue for income-focussed investors to access the sector.
But owning the right kind of real assets is key, and generally requires a lot more thought than throwing wads of capital at Nvidia, which recently became the most valuable company in the world. According to equity investment manager Martin Currie this means tapping into demand for both data and electricity demand.
Data centres are at the heart of the AI boom, Martin Curries says, serving as the “backbone” of the data explosion by housing the servers, routers, switches and end-to-end storage systems that support cloud computing. Major players in this arena include “hyperscalers” like Amazon Web Services, Microsoft Azure, Google Cloud and Verizon, but smaller and mid-sized players are increasingly joining the fray.
“The global data centre market is experiencing rapid growth, driven by the increasing demand for these data services,” Martin Currie says. “As technology advances, AI applications will generate massive amounts of data requiring more sophisticated, robust storage capacity and solutions.”
The revenue models for data centres are capped in a different way to traditional real estate, Martin Currie adds, which increases the profitability opportunity significantly.
“Importantly, data centre landlords typically charge customers based on their data use, measured in kilowatts rather than actual space used,” the investment manager continues. “This contrasts with say office landlords where rent is charged on a square metre basis. In data centres, this is analogous to charging tenants based on how many people sit on each floor (density) rather than the floor area itself – and AI is driving up density in a huge way.”
Alongside data centres, Martin Currie highlight energy utilities as well positioned to benefit from the AI boom, with those focussed on sustainable power having a strategic long-term advantage.
“AI operations, particularly deep learning, require significant computational power. Data centres must ensure continuous, reliable power supply to prevent downtime and data loss,” Martin Currie states.
“As the energy demand grows, the focus shifts towards renewable and sustainable power solutions to reduce carbon footprints and meet regulatory requirements. A shortage of available power and transmission connections could limit data centre growth, an issue already observed in some markets. A synergy between AI, data centres, and energy utilities is crucial, especially as the world shifts towards greener energy sources and upgrades to the transmission grid are required.”
