Data usage is growing exponentially. Digitalization and artificial intelligence (AI) are among the many catalysts driving demand for data. This trend is powering the need for more infrastructure to store and transmit data. According to one estimate, the global economy must spend $1 trillion over the next five years to upgrade its data infrastructure to support the increased flow of digital information.
That massive opportunity is driving Brookfield Infrastructure (BIP 0.79%)(BIPC +0.00%) to expand its data infrastructure platform to capture more of the sector's growth. It recently agreed to acquire another data center company, increasing its exposure to that fast-growing sector. These deals should give Brookfield the power to continue growing its 4.3%-yielding dividend.
Buying a leading data center builder
Brookfield Infrastructure, its institutional partners, and existing investor Ontario Teachers' Pension Plan have agreed to acquire Compass Datacenters. While the buyers didn't disclose the purchase price, an earlier report suggested that the data center operator's current owners sought to sell the company for more than $5.5 billion.
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Key Data Points
Compass Datacenters specializes in building data centers, particularly customized mega campuses in North America for leading technology companies. It has designed, built, and delivered more than $5 billion of data centers worldwide to customers. Some customers take ownership of the data centers, while others lease them back from Compass.
The new ownership structure will provide the fast-growing Compass with the financial support to develop new data centers. The growing earnings from those facilities will increase Brookfield's cash flows.
Enhancing its focus on a key trend
In commenting on the deal, Brookfield CEO Sam Pollock stated:
Digitalization remains a key thematic investment for Brookfield Infrastructure. The need for data storage continues to grow at an exponential rate across the globe, and Compass complements our existing platforms in South America, Europe and Asia Pacific. Compass is a best-in-class data center platform that we have known for years and we are excited to partner with (Compass founder and CEO Chris (Crosby), the Compass team, and Ontario Teachers' to support Compass on its rapid growth journey.
The accelerating adoption of technology as more companies move their business processes online is a big driver of the need for additional data center capacity. In addition, emerging technologies like generative AI could drive even more demand for space in data centers in the future.
This significant growth potential is driving Brookfield's strategy to build a global data center platform. In 2019, it spent $1.1 billion to acquire 31 data centers from AT&T (18 in the U.S. and 13 in international markets). It established Evoque Data Center Solutions to operate the assets. That same year, it partnered with Digital Realty to acquire Ascenty for $1.8 billion, a leader in data center infrastructure in Latin America. In 2021, Brookfield and Digital Realty established another joint venture to develop and operate data centers in India. Earlier this year, the company expanded into the European data center market, acquiring Data4 in a $3.8 billion deal.
Data centers are only one aspect of the digitalization investment megatrend. That's led Brookfield to make several other digitalization-related investments. Last year, it acquired European cell tower operator DFMG and Australian telecommunications services company Uniti Group. It also partnered with Intel to help fund nearly half of the chip giant's $30 billion investment to build two new manufacturing plants in Arizona.
These investments helped drive 12% FFO per share growth for Brookfield last year. Meanwhile, its continued investments in new data infrastructure have it on track to grow FFO at a double-digit annual pace over the next couple of years. That will put it in an excellent position to achieve its target of increasing the dividend by 5% to 9% each year.
Data-driven growth
Rapidly rising data usage is driving the need for more infrastructure to store and transmit digital information. That's leading Brookfield Infrastructure to invest heavily to acquire expandable data infrastructure platforms to further capitalize on this megatrend.
Earnings growth from these investments will help support and grow the company's 4.3%-yielding dividend. Those dual catalysts should give it the power to generate market-beating returns. That income and upside potential make Brookfield Infrastructure a great stock to buy these days.
