Artificial Intelligence (AI) needs a massive amount of computing power and data storage to thrive. That's powering a boom in data center demand. According to Blackstone president Jonathan Gray, major tech companies will pour $1 trillion into data centers over the next five years.
Third-party data center operators are one of the many beneficiaries of the AI boom. They're seeing high occupancy levels and rising lease rates at existing locations, and many new expansion opportunities. That's accelerating growth and driving up the value of most data center operators.
However, the market hasn't yet grasped the magnitude of the AI-powered growth ahead for global infrastructure giant Brookfield Infrastructure (BIPC +0.00%)(BIP 0.54%). Because of that, it trades at a super-cheap valuation compared to real estate investment trusts (REITs) with growing data center platforms:
|
Data center company |
Recent Price |
2024 FFO Forecast (midpoint) |
Price-to-FFO Ratio |
|---|---|---|---|
|
American Tower |
$186.68 |
$10.33 |
18.1 |
|
Brookfield Infrastructure |
$33.53 |
$3.16 |
10.6 |
|
Digital Realty (DLR +0.27%) |
$138.23 |
$6.68 |
20.7 |
|
Equinix |
$873.05 |
$34.95 |
25.0 |
|
Iron Mountain |
$74.00 |
$4.45 |
16.6 |
Data source: Google Finance and company investor relations websites. NOTE: The recent price is as of February 27, 2024.
That makes it a bargain buy for those seeking to cash in on the coming AI-powered boom in data centers.
NYSE: BIPC
Key Data Points
Quietly building a leading global data center platform
Brookfield Infrastructure operates a globally diversified infrastructure platform with investments in the utilities, energy midstream, transportation, and data sectors. Its data infrastructure platform features 228,000 operational telecom tower sites, over 33,500 miles of fiber optic cable, two semiconductor manufacturing facilities currently under construction, and 135 data centers.
The company has built its global data center platforms over several years. In 2019, it spent $1 billion to acquire a portfolio of data centers from AT&T in the U.S., creating the Evoque Data Centers platform. It has also formed two international joint ventures with data center REIT Digital Realty. The companies joined forces to acquire the Ascenty data center platform in South America and have since formed a data center development joint venture in India.
NYSE: DLR
Key Data Points
Brookfield made three more data center investments last year. It acquired a co-controlling stake in North American data center developer Compass Datacenters. It also acquired European data center operator Data 4. Finally, Brookfield bought a portfolio of U.S. data centers out of bankruptcy from Cyxtera and the underlying real estate from third-party landlords, including Digital Realty. It merged those facilities into Evoque, creating an even larger-scale platform.
Capitalizing on a once-in-a-generation opportunity
Brookfield operating a large-scale, global data center platform positions it to capitalize on the explosive growth it sees ahead for data center demand. At its annual investor day last fall, a speaker commented, "In terms of megawatt (MW) capacity over the next three years, we estimate that an additional six gigawatts (GW) of capacity will be required to meet data demand." That drives its view that "We're in a once-in-a-generation investment cycle for data centers at the moment."
The company has the platform and the land bank to deliver transformational growth over the coming years. It currently operates 135 data centers with 750 MW of capacity. It has 900 MW of contracted capacity currently in its backlog. Those projects will grow its data center funds from operations (FFO) by 2.5 times over the next three years. Meanwhile, it has the space to expand its total capacity to 2.3 GW over the next five years.
In addition to acquiring growing operating platforms, Brookfield has been strategically expanding its land bank to support additional expansion. CEO Sam Pollock wrote in his fourth-quarter letter to investors that it has been "acquiring strategic parcels of land that have strong customer interest." For example, he noted, "Following further discussions with our customers regarding their growth ambitions, we acquired a strategic land site in Milan that can accommodate over 60 megawatts of capacity." Brookfield has the scale and access to capital to rapidly scale its data center portfolio over the next several years, which could create significant value for shareholders.
Transformational growth for a dirt cheap price
The market has yet to fully grasp the massive growth potential of Brookfield's data center platform. Because of that, it trades at a dirt cheap price compared to other data center developers. That allows investors to scoop up its cheap shares to cash in as it capitalizes on the anticipated explosive growth ahead for the sector. It could significantly outperform its more expensive rivals as the market catches on to its AI-powered upside potential.
