Navigating the AI Revolution: Unpacking the Infrastructure Boom
The artificial intelligence (AI) juggernaut continues to reshape global markets, with entire sectors now experiencing dramatic shifts based on its perceived impact. While the long-term consequences of this technological tidal wave are still being debated, one thing is clear: AI has become a dominant force influencing equity markets. For investors seeking a less volatile entry point into this all-encompassing megatrend, a straightforward strategy might be the key.
As part of an ongoing series exploring listed opportunities, an interview with Billy Leung from Global X shed light on the evolving AI landscape and the unique investment prospects it presents.
The Third Act of the AI Supercycle
While AI has dominated headlines since the widely publicised launch of ChatGPT in late 2022, its roots run deeper. The initial phase, spanning roughly six to seven years ago, was characterised by compute power as the primary driver. This was followed by “phase two,” which saw the emergence of hyperscalers – major tech giants and private AI pioneers – engaging in an intense technological arms race. Leung suggests we are now entering a new, more expansive phase.
“The current phase we’re observing is the AI infrastructure phase, or ‘phase three’,” Leung explained. “This is where we anticipate the majority of investment opportunities will lie over the next few years.”
During phase two, investment opportunities were largely confined to the hyperscalers themselves. However, phase three marks a significant broadening of the investable universe.
“We view this AI infrastructure phase as more multifaceted and multi-layered,” Leung elaborated. “It’s not solely about data centres; we’re looking at the essential ‘picks and shovels’ required for this infrastructure build-out.”
This includes a wide array of components:
- Cabling: The intricate network of cables necessary for connecting and operating data centres.
- Cooling Systems: Advanced equipment designed to manage the immense heat generated by AI hardware.
- Energy Storage: Solutions for storing and delivering the vast amounts of power required.
- Raw Materials: Essential commodities like copper and uranium, crucial for both hardware manufacturing and powering these facilities.
- Energy Supply: The fundamental energy sources needed to sustain data centre operations.
The “Picks and Shovels” Advantage
History consistently demonstrates that the most reliable way to capitalise on transformational technologies is by providing the foundational tools and resources – the “picks and shovels.” This philosophy underpins Global X’s approach.
The Global X AI Infrastructure ETF (ASX: AINF) offers investors exposure to approximately 30 global companies involved in the broader AI infrastructure theme.
“It encompasses the ‘picks and shovels’ that are integral to this infrastructure development,” Leung stated.
The ETF’s holdings are diversified across key areas:
- Data Centre Infrastructure: Ten companies focused on the physical construction and operation of data centres.
- Energy and Cooling: Ten companies providing the critical energy and cooling equipment required.
- Raw Materials: Ten companies involved in the extraction and supply of essential raw materials, primarily copper and uranium.
Unlike phase two, where an investment in AI often meant a concentrated bet on US Big Tech, phase three allows for genuine diversification across different regions, sectors, and individual stocks.
“With this AI infrastructure theme, it’s crucial to understand that it extends beyond a single type of company,” Leung emphasised.
Rather than attempting to identify individual winners in the AI race, the infrastructure phase represents a more agnostic bet on the technology itself. This makes an Exchange Traded Fund (ETF) structure particularly appealing.
“The entire value chain needs to be considered, which is why our AINF ETF resonates with investors,” Leung explained. “It provides a single product that allows them to capture the comprehensive build-out of AI data centre infrastructure.”
Leung highlighted several companies within the ETF that exemplify the investment opportunities and diversification available:
- Vertiv (NYSE: VRT): A leading provider of energy equipment, now a major global supplier of cooling solutions for data centres.
- Siemens AG (ETR: SIE): Having transitioned from telecommunications to automation, Siemens plays a vital role in powering the data centre sector.
- Southern Copper (NYSE: SCCO): One of the world’s largest copper miners, supplying a critical raw material for AI infrastructure.
Navigating Potential Pitfalls
Global X maintains a strong conviction in AI’s transformative potential and its long-term growth trajectory. “We believe this is a fundamental structural story,” Leung asserted.
He pointed out that AI investment, as a percentage of global GDP, remains relatively low compared to previous historical innovations, suggesting significant room for expansion.
However, Leung also cautioned against unchecked expenditure. In what could evolve into a winner-takes-all market, investors should be mindful of companies, including major hyperscalers, that might be overspending on AI in pursuit of market share that may not materialise. “AI is not over-invested across the board, but there’s a risk that some specific companies might miscalculate their future market share, leading to over-investment on their part.”
This has contributed to a crowded investment landscape in US big tech, potentially overshadowing more promising opportunities in Asian markets and the burgeoning field of humanoid robotics.
Leung concluded with a compelling outlook on AI’s pervasive influence: “One of my colleagues in the US often says that in the future, there will only be two types of companies: those that use AI and those that don’t exist. We are strong believers in that statement.”
