With the proliferation of data, continued adoption of digital use throughout the world and the promise of AI among us, digital infrastructure is the backbone of global connectivity. At infra/STRUCTURE 2024, which took place in September at the Wynn Las Vegas, leaders from the industry space tackled key challenges and emerging opportunities, underscoring the complexity of building and sustaining this vital industry. The “Macro Constraints and Unprecedented Opportunities” panel featured Adam Lewis, Managing Director at Citizens Bank; Ryan Thom, Partner at Novacap; Ariana Batori, Principal at Boundary Street Capital; and Horace Zona, Investor at DigitalBridge. The conversation spanned from the insatiable demand for digital infrastructure to the power of AI, quantum computing, and capital recycling.
Growing Demand and Macro Constraints
The digital landscape is experiencing unprecedented growth, driven by advancements in AI, cloud computing, and data consumption. Industry leaders are grappling with the challenge of keeping pace with this rapid growth. Thom framed the discussion by addressing the ever-increasing demand for infrastructure, “there’s sort of an insatiable demand for capacity in digital infrastructure, but at the same time, we’re constrained by the availability of power and capital.”
One key topic among the panelists was pre-leasing — a practice in which companies secure infrastructure space years in advance. Thom highlighted, “I’ve been hearing about pre-leasing, not just a year ago or two years ago, in some cases almost three years out.” This approach has become crucial for managing the growing demand for digital infrastructure projects, allowing companies to lock in capacity well in advance.
Capital Requirements and Risk Management
As digital infrastructure projects scale, the capital needed to fund these endeavors grows. Investors are increasingly cautious about tenant creditworthiness, especially as new business models, such as GPU-as-a-service, begin to reshape infrastructure demands. The panelists discussed the risk that comes with onboarding clients who might not have established financial histories. Lewis pointed out a recent experience, “The most extreme case of one that we’ve been unable to get comfortable with from a credit perspective was when the only thing we were shown about the tenant was a bank account. We were happy to see the cash was there, but when it comes to a return on investment, the question is — what’s the expected cash flow coming in from that client?”
Moreover, the panel emphasized the need for capital recycling — finding innovative ways to unlock funds from existing assets and reinvest them into new developments. “The securitization market is part of the answer,” Thom explained, “there’s a real, great opportunity for investors to come in and solve the problem”
AI and Power Demands
Artificial intelligence (AI) continues to push the boundaries of infrastructure. The conversation shifted to the unprecedented power needs of AI, especially as models like ChatGPT evolve. One startling projection came from a participant who recounted a discussion with a senior hyperscaler executive about the compute power required for version seven of ChatGPT. It was a startling number, estimated somewhere between 30 and 50 gigawatts of incremental power for training. That’s a phenomenal number and illustrates the sheer scale of infrastructure investment we need to support AI advancements.
Strategic M&A and Market Consolidation
As the digital infrastructure market matures, companies are beginning to explore consolidation to build scale and drive growth. While the pace of mergers and acquisitions (M&A) has slowed in recent years, the panel expressed optimism about future activity. “I think there’s only one way to go, and that’s up,” Zona remarked. He also emphasized that as capital becomes more constrained, combining resources through strategic M&A could help companies navigate the challenging market environment.
Emerging Opportunities: Quantum Computing
The discussion concluded by touching on new frontiers in digital infrastructure, including quantum computing. Although the market for quantum computing is still in its infancy, Thom and the other panelists acknowledged its potential as a game-changer. “Quantum computing is an active seed market. I think we’re a long way away from seeing that in the debt markets, just because the very nature of the compute is still evolving,” Thom explained.
Looking Ahead
The panel left attendees with a sense of both excitement and caution. As digital infrastructure evolves to meet the needs of AI, cloud services, and potentially quantum computing, the opportunities are vast. However, companies must navigate macro constraints like power availability and capital limitations. “We’re in a growth phase,” Thom concluded. “You need more actors, more players, a more efficient market eventually.”
Attendees of the annual infra/STRUCTURE summit receive a copy of the presentation materials.
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