While data centers and AI-related infrastructure have attracted significant interest, investment executives believe there are many opportunities in other areas of the digital economy.

Speaking to InvestorDaily, Dan Farmer, chief investment officer at MLC Asset Management, described a preference for the economic trend of digitization outside of data centers, including exposure to fiber optic networks, telecommunications towers, power lines and distribution networks.

“We think demand for data will continue to increase, driven by cloud computing, the Internet of Things and working from home,” Farmer said, with the now “core” data access service providing a tailwind for infrastructure investment in this area.

MLC's diversified infrastructure portfolio of more than 80 major assets holds approximately 50 percent in "new infrastructure," he explained, along with more traditional infrastructure assets such as airports, utilities and roads.

“All things being equal, we believe businesses involved in economic digitalization and renewable energy generally offer better risk-adjusted returns as part of an infrastructure allocation within a diversified portfolio, providing greater upside potential. as they are driven by long-term structural trends,” he said.

Looking at the recent focus on data centers, Farmer said there are indications that significant growth assumptions are being built into the valuations of these businesses.

"So another way to approach this topic would be to invest in adjacent areas that are involved in the deployment of fiber optics connecting data centers to data centers and then data centers to homes," Farmer said.

Raghu Sivanesaraja, co-portfolio manager of Tribeca Asia Infrastructure Fund, also noted that data centers, which have long been part of the fund's portfolio, have seen significant attention in 2024.

The latest figures show that more than $22 billion was invested globally in these assets in the first five months of this year, up from $36 billion in 2023.

“Really, for the last six months, everyone has been talking about it. Not just in the news, but most of our investor questions — I'd say about 85 percent of them — are about data centers,” he told InvestorDaily.

According to Sivanesarajah, while data centers are likely to continue to enjoy AI tailwinds, a number of other infrastructure sub-sectors may be flying under the radar.

Healthcare infrastructure, for example, will require significant capital to meet the growing needs of aging populations in both developed and emerging markets, he pointed out.

“There are some significant barriers to entry there. Not only do you need a lot of capital, you need a lot of specialist knowledge, and governments around the world are realizing that they need to commit to that and they're going to need the private sector to be a partner in that," Sivanesaraja said.

“When you find the right operator, there are actually some very strong long-term growth forecasts for this sector. You're going to get the right social outcome, but you're also going to get the right economic outcome, so I think there's some significant opportunity there."

Moreover, with Asia expected to house about two-thirds of the world's middle class by 2030, these economies are poised for significant growth.

"What happens when you have a growing middle class like this is that they want to travel, so assets like airports are quite attractive," Sivanesaraja said.

“Coming out of the COVID period, their profits have been depressed, capacity on many routes has yet to return to pre-COVID levels, and airfares for the most part are significantly higher. On some routes, they are 50 percent higher than before COVID.

"So there's a good opportunity here where not only is the top line potentially growing, but the amount of people who want to travel is going to increase, and that's going to be there for a number of years."

But Susanta Mazumdar, portfolio manager at Tribeca Asia Infrastructure Strategy, added that investing in infrastructure "is not about catching a wave."

"What AI is going through with data centers, we don't know how long it's going to be around and as we've seen with all cyclical investments, in the technology sector or any sector, it comes in waves and it goes in waves," he said .

Opportunities in clean energy

Sarah Shaw, global portfolio manager and chief investment officer at 4D Infrastructure, said infrastructure provides investors with a unique opportunity to tap into some of the most exciting growth drivers over the next two decades.

Although data centers feature prominently in recent discussions around AI, she believes a better way to "play out" this topic is through communications towers and the power sector.

In particular, regarding the energy transition, Shaw pointed out that significant investment will be needed "if the globe is to have any chance of achieving net zero goals."

“This is not just a developed market story and it's not just a renewables story. Without massive investment in grids, the energy transition fails, and when you can capture that investment with regulated returns, the subject becomes very attractive," she said, describing grids as the "underrated investment opportunity."

Thomas Vegelius, a partner at Access Capital Partners, also described the energy and utilities sector as a strong growth area.

An estimated $1.6 trillion to $6.5 trillion in global infrastructure spending is needed by 2030 to achieve a commitment to carbon neutrality by 2050, he said.

"Investment in clean energy will need to triple by the end of the decade to keep the 1.5 degrees Celsius target, so we see significant growth in the volume of renewable energy projects being launched and a greater need for funding."

"We are also seeing a wider variety of renewable energy projects such as small hydro and solar projects, biogas projects as well as integrated and flexible solutions such as battery energy storage," he said.

In addition, the transport and mobility sector is showing strong prospects, Wegelius added, amid a major transformation to achieve carbon neutrality.

"The transition to clean mobility is one of the major issues over the next few years, creating significant opportunities in the sector," he said.