Large tech companies, corporations, and utilities are on track to spend around $1 trillion on capital expenditures to support AI in the coming years, according to an estimate by Goldman Sachs. The technology needs data centers, semiconductors, and a lot of power to learn and generate output.
Those investment trends play right into the strengths of Brookfield Infrastructure (BIPC +0.00%)(BIP 0.35%). The global infrastructure company operates utilities, gas pipelines, and data centers and is helping build new semiconductor capacity. It also has tremendous access to capital to help other companies support their AI investments.
Because of that, in Brookfield's second-quarter earnings release, CEO Sam Pollock said, "outlook for growth is very favorable as the surge in AI adoption is generating substantial capital deployment opportunities across our data, electric utility, and natural gas sectors." It could give Brookfield lots more fuel to grow its nearly 4.5%-yielding dividend.
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Key Data Points
Built around the three D's
Brookfield Infrastructure has shaped its portfolio of operating companies to capitalize on three major investment themes: decarbonization, digitalization, and deglobalization. It has sold businesses that don't align with the "three D's" and recycled that capital into new ones that capitalize on one or more of those megatrends.
This strategy could pay big dividends for the company and its shareholders in the coming years. Pollock wrote about the opportunities ahead for Brookfield in his second-quarter letter to investors:
A decade of history investing in digital infrastructure, combined with our ability to originate novel capital solutions (like our partnership with Intel), position us to be the leader in AI investing. We are in active discussions with several blue-chip technology companies that are interested in leveraging Brookfield Infrastructure's market leading scale and expertise. The tailwinds created from AI adoption support exponential growth in our global data center platforms that service the large hyperscalers, as well as our electric utilities and natural gas infrastructure that transport and provide energy to the grid in support of the heightened load requirements.
As Pollock notes, companies are starting to come to Brookfield to help them support their AI ambitions. They need more data center capacity and energy, which Brookfield can supply.
It can also provide them with capital solutions, like its partnership with Intel to help fund the construction of two new semiconductor fabrication plants in the U.S. These AI-related investments could enhance the company's already robust growth rate.
It currently expects to grow its funds from operations by more than 10% annually in the coming years, driven by inflation-linked rate increases, volume growth, capital projects, and acquisitions.
Accelerating growth opportunities
Brookfield has already started to see some AI-related investment opportunities emerge. Pollock wrote, "Across our global data center platform, we continue to see strong momentum in leasing activity across geographies on the tail of artificial intelligence investment and our customers' need for more processing and storage capacity." He then highlighted a couple of examples.
In Europe, Brookfield expects to grow its platform from its current 300 megawatts (MW) of operating or contracted capacity to over 725 MW within its existing footprint. The company recently bought land in Athens, a new market, to support a 30 MW facility with a leading hyperscale data center customer.
Meanwhile, its U.S. data center platform has 235 MW of operating capacity. It recently bought more land and now has the room to expand its capacity to over 1.1 GW in the coming years.
Those data center investments are only a fraction of its $7.7 billion backlog of organic expansion projects. Other notable investments include its semiconductor investment and spending to expand its natural gas infrastructure to provide utilities with more gas to generate electricity.
On top of its robust organic growth drivers, Brookfield believes mergers and acquisitions (M&A) will further accelerate growth. The company sees a healthy global economy and falling interest rates as catalysts to reinvigorate M&A activity in the back half of this year. Companies need capital to fund their AI-related investments, which should open up lots of new investment opportunities. Brookfield is in an excellent position to capitalize on this environment due to its robust access to capital.
Cash in on the AI megatrend
Companies could pour about $1 trillion into AI-related capital investments over the coming years. That should benefit Brookfield Infrastructure in several ways, including providing opportunities to expand its data center, electric utility, and gas infrastructure operations.
In addition, it should open the doors to new investment opportunities to either partner with companies that need capital or acquire assets from them. That should help accelerate the company's already strong growth rate, giving it more fuel to increase its high-yielding dividend. That growth and income could enable Brookfield to produce supercharged total returns in the coming years, making it a great way to potentially cash in on the AI investment boom.
