From the railroads of the Industrial Revolution to the extensive road systems that ushered in the automobile era, durable infrastructure has been the backbone of thriving economies.

Today, the rise of artificial intelligence (AI) is supported by data-driven and power infrastructure. The growth in data usage and mobile connectivity is unparalleled and continues to expand at a rapid pace.

AI and data proliferation

So far, the AI investment story has been dominated by a handful of companies at the forefront of developing ‘large language models’ – sophisticated text-based AI tools.

But an entire ecosystem needs to be built to support the growth of this new technology – to transmit, process and store the massive amounts of data that’s generated.

To meet this demand, the world needs to invest heavily in telecommunications infrastructure – cell towers, data centres, broadband, 5G and cloud networks.

Everyone needs to do this, but the need is most acute in the developing world where many countries have bypassed earlier technologies to directly adopt the digital ecosystem.

However, the surge in data is just one piece in the infrastructure jigsaw puzzle. With greater data usage, energy demands escalate.

Energy transition, consumption

Energy is the next piece of the jigsaw. We see a convergence of two enduring trends – the transition to more sustainable energy sources and a significant increase in energy demand.

The pivot towards renewable energy and sustainability goals has opened big opportunities in renewable infrastructure – wind, solar and hydroelectric power.

These technologies have been displacing fossil fuels for some 15 years. They will now become important in supporting a transformation in our energy consumption patterns.

That’s because demand for power will increase. Power usage in the US over the past 20 years has grown less than 1% a year. In Europe, it's declined by some 10%. But this is about to change.

Developed markets, especially, will consume more power for three key reasons:

This rise in energy demand highlights the need for more investment in energy infrastructure to ensure both reliability and sustainability.

Demography, urbanisation

Demography and urbanisation make up the third piece of the jigsaw. The world's population has doubled over the past 50 years, while urban populations have tripled over the same period. These trends have placed a massive strain on existing infrastructure.

Looking ahead, our global population is expected to grow another 20% by 2050. Meanwhile, the number of people living in cities is projected to increase by some 50%. Much of this will take place in the developing world.

There is a growing need for infrastructure – utilities, rail and roads – to support urbanisation, particularly in developing markets.

But data-driven infrastructure will also be important. Emerging markets are already plugged into the digital economy. For example, data demand in Africa is projected to quadruple by 2028.

What should investors look for?

We suggest you focus on infrastructure companies that can benefit from long-term contracts – which should generate a steady predictable income – and have minimal exposure to commodity risk.

An investment strategy may span energy, roads, airports, ports, utilities, cell towers and data centres. Geographic diversification is important. For example, our own portfolio has exposure to the US, Europe, Asia, and the emerging markets.

A well-chosen portfolio has the potential to deliver stable returns – a valuable quality in volatile markets. Many infrastructure investments also have revenues that are directly linked to inflation. While inflation is falling, inflation protection offers a buffer should prices rise again.

Final thoughts

I have been managing infrastructure funds for some 16 years and I think this is one of the most exciting times to be investing in this asset class.

We are part of a digital-driven economy, where smartphones, online meetings, and remote work have become the norm for many people. The demand for data is set to continue its upward trajectory.

Infrastructure investment is critical. Whilst all investments involve risk, with a well chosen portfolio infrastructure investors can expect reliable and steady growth – providing long-term stability that can be more attractive than the elasticity of other sectors.

Without the appropriate infrastructure, consumer-oriented AI will merely be a fleeting trend and the energy transition will stumble. Furthermore, countless individuals in the developing world might not realise their full personal and economic potential.

With infrastructure investing, there’s much more at stake than just dollars and cents.