Investing in the Foundation of the Digital World
The words “digital infrastructure” might seem contradictory: Digital brings to mind the web, AI and the intangible, while infrastructure calls up massive bridges, roads and power plants. But the ongoing AI revolution and the worlds of data and ecommerce are impossible without physical infrastructure like cell towers and data centers.
We believe there are potential benefits in exploring private market investments within digital infrastructure.
Four major types of digital infrastructure meet our criteria:
• Fiber optic cables: Fiber optic cables link all kinds of data transmission, serving cell towers, data centers, individual end users and businesses. Global bandwidth demand is growing exponentially, which means deploying fiber is critical. There’s an acute shortage: Nearly 60% of the U.S population lacks access to fiber today.
• Data centers: Data centers are “warehouses” for computing and processing large amounts of data, storing that data and housing networking equipment. Data centers are vital for companies with AI ambitions, as companies need access to that data and analytics to make AI tools work. Compared to other types of digital infrastructure, data centers have historically exhibited high returns on invested capital and lower customer turnover.
• Cell towers: A cell tower is a raised structure containing transmitters and receivers. As global internet bandwidth grows, more towers and smaller cell sites are needed to create functioning networks. The U.S. cell tower market has consolidated over the past 20 years, limiting the number of competing companies and supporting attractive valuations. While past performance is no guarantee of future results, as investments, cell towers have historically offered stable recurring cash flows and high barriers to entry due to the tremendous capital required up front.
• Wireless communication: Invisible radio frequencies enable all wireless technology, including cell phones, Wi-Fi, Bluetooth devices, aircraft navigation and satellite applications. Collectively, these frequencies are called “spectrum.” Demand for high-quality spectrum assets such as licenses and bundles of frequencies continues to grow because of the proliferation of connected devices and faster networks.
We believe private digital infrastructure assets are not only an opportunity to diversify a portfolio and hedge returns, but also to create stable cash flows over the long term.
Rick Barragan is the Managing Director,
Los Angeles Market Manager, for J.P. Morgan Private Bank.
[email protected] | (310) 860-3658
privatebank.jpmorgan.com/los-angeles
Source: J.P. Morgan Private Bank Insights, May 22, 2024. “Investing in the foundation of the digital world” By Tiffany Lewis, Head of Infrastructure Investments and Diverse Manger Strategies, Mark O’Connor, Alternative Investment Specialist, and Nikhil Dawda, Alternative Investment Specialist, J.P. Morgan Private Bank.
