Digital infrastructure is all around us, but most people don’t realize it. It is a high growth industry and is one of the asset classes that can be found in the alternative investment space. As technology becomes faster and more demanding there needs to be infrastructure to support it: physical infrastructure for our digital world. In the Self-Storage article we discussed people looking to take junk out of their homes or have an intermediate storage place while moving. People also are accumulating data as well as the stuff they put in storage units.
Digital Infrastructure Comes In Many Forms
These forms can include cell towers, fiber optics, data centers, and many others; all holding our data and/or supporting our networks. Internet connection, the cloud, computation, and security are a few more specific service types provided. Clients of these are often telecommunication or large technology companies such as Google
GOOG
. Today’s digital infrastructure provides more control for the client than in the past for how they consume these services.
Why Invest In Digital Infrastructure
Put simply, the reason to consider investing in digital infrastructure is it rides off the growth of technology, something we are in a sort of golden age of. One major concern that can be taken advantage of is how AI will strain the providers of digital infrastructure according to Forbes. This creates demand from clients for infrastructure providers to expand. Those who expand the fastest and most efficiently may have the better offering, and therefore emerge a leader. 5G is also growing partly due to the increased digital demand that COVID-19 created as well as many other things affected by the pandemic. Digital infrastructure is also often measured in megawatts as the more power used can indicate the provider is receiving more in income. While these structures may have some serious overhead costs, their vacancy rate is extremely low. According to StratCap, the North American primary market vacancy rate was around 3% in 2022. One way to think of this is as an investment into the framework of the technology sector. The returns are deriving from assets that may be bought, sold, and eventually leased. In a market where the demand is overrunning the supply, it can be an uphill battle if invested properly. Lastly, according to HarbourVest, this infrastructure sub-sector is outperforming other sectors for realized deals shown in historical data.
What To Consider
There are a variety of investing methods within infrastructure. Like anything in your portfolio, it’s important that investments or funds containing infrastructure are well diversified. Something that may be overlooked at times, as technology is hard to keep up with already, is adaptability of the asset, the firm using it, or even the company whose fund invests in it. The infrastructure itself should have a place in the future while companies surrounding it should have a track record of agility in keeping up. Mentioned earlier were the types of structures that are the underlying investments in a fund but there are many more available and surely more to come. Understanding the asset within the technology sector and its future outlook can aid averting risk and investing in market trends before the market reacts.
Whom and Where Infrastructure Serves
Telecommunication and software companies are some of the largest clients of digital infrastructure providers. Telecommunication companies are the main clients for cell towers and generate great revenue for data centers. As mentioned before, software companies may be some of the biggest drivers of data centers just as telecommunications drives cell towers. The pace of the growth seen might be fast, however we have yet to cover how this phenomenon may be even faster where the nations themselves are also developing. Harvard Business Review has witnessed a “digital payments revolution” in India. Digital business is reshaping India, a developing nation which belongs to the BRICS economic bloc. Recently expanded, the bloc has more than doubled in size this year. Harvard emphasizes that digital public infrastructure and the forces that ensue from its expansion are spreading throughout the developing world. It can be inferred that this will exponentially expedite the success of investment into digital infrastructure.
What Have We Learned?
Having reviewed digital infrastructure for what it is, why it’s growing, considerations while investing, and how it serves our world we can now see the underlying support systems of our technology revolution. It’s imperative our society as a whole supports this surge to ensure we can keep up with our own demands. This leaves investors with the opportunity to diversify their portfolios away from risk of which companies will succeed or fail, and instead into infrastructure funded by the winning organizations.
Securities offered through Arkadios Capital. Member FINRA/SIPC. Advisory services offered through Creative Capital Wealth Management Group. Creative Capital Wealth Management Group and Arkadios are not affiliated through any ownership
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