Stonepeak CEO on Digital Infrastructure Investing

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00:00I mean, with anything related to AI or AI infrastructure, there are still some concerns

00:06about valuation given the exuberance right now and perhaps the energy need expectations at this

00:12point. What's your assessment on the ground? I think that's probably fair. I think that

00:19from a valuation standpoint, certainly the trends driving all this data center build,

00:25they're real, okay? So you go back historically and every forecast of how many data centers we'll

00:31need has been wrong. And it's been wrong because it's been underestimating the amount of capacity

00:37we do need. So I'm a big believer in the long-term growth trends in terms of assets on the ground

00:44for data centers. But I do think it is fair to say that there is a lot of exuberance around that

00:51space. We'll see whether valuations are justified over time. But you'd certainly need a pretty

00:58smooth continuation in the AI trend and the cloud trend without too many bumps in the road

01:04in order to underpin the valuations we see today. On the other hand, if you're going out there and

01:14building new data centers and doing that on the back of long-term contracts from the big tech

01:20companies, and that's what the data center players are doing today, I think there's incredible

01:26investment value there. Just to put that in perspective, you can build a new data center in

01:31Asia, in the US. It just differs a little bit between markets, but call it somewhere between

01:378 to 12 times earnings. I think that works out quite well. You go and buy a big platform for 30 times,

01:44you just need more to go right. So I think your concerns, it's certainly worth consideration for

01:51sure. I was going to say, are the concerns over a bubble in data centers justified in every market

02:00across regions? Do they vary? And where do you see the opportunities then? I wouldn't go so far as to

02:08call it a bubble in data centers. Again, I think the trends are very real. I do think the build

02:16economics are very strong for data centers. So I wouldn't go as far as to call it a bubble, but

02:22certainly there's a lot of exuberance around the AI and data center space. I distinguish a little bit

02:29between markets. If you look at the historical data center market, both in Asia and the US and Europe,

02:36it's been heavily cloud driven and cloud growth has been very strong. So cloud growth for a decade

02:41or so has been in the 20 or 30 percent range. So that's been a very strong underpinning for a long

02:47time. AI has certainly put rocket fuel on that fire. If you look at AI globally today, most of AI is in

02:54the US. So something like three quarters of GPUs in use globally are in the States. And then the next

03:02biggest country is China with something like 15 percent of the GPU usage between US and China.

03:08That's 90 percent of GPU. So there's a big gap between those two countries and the rest of the

03:13world from an AI standpoint. But certainly cloud growth in Asia is incredibly strong.

03:19Just picking up on that point, right? Yeah, strong in Asia, it looks like. But still,

03:26the concerns remain about whether there's going to be more AI capacity than will eventually be required.

03:35So in considering, you know, this optimism in Asia, what are you using as your sort of metrics

03:41to consider which markets to be expanding in?

03:45So we look at build economics. We, you know, everyone's got their different approach. But from

03:53our standpoint, we're very big on asset creation in all the markets we're in. We just tend to find

03:59that you can build things a lot more cheaply than you can buy them for. So we look at build economics. So

04:05build economics in the US before AI were okay, but not amazing. Since AI came into being,

04:13build economics have improved enormously. So, you know, in real estate terms, cap rates for a new

04:19data center in the US were six or seven percent before AI. Okay, but not, not, you know, all that

04:25enticing. Almost overnight, once AI came into the market, those cap rates jumped up into the double

04:31digits. You know, early on when there was real a gold rush for those who had power, you were seeing cap

04:38rates of 15 percent. I mean, that's incredible with these big, strong technology companies,

04:43your counterparts. They have come down a little bit in the US, but very, very good cap rates for

04:48new build. In Asia, similar, if not higher in Asia. So we've been very happy with what we've seen in

04:55terms of the economics we get on building new data centers. And, you know, you've got good contractual

05:01backing there. If the market backs off for a while, well, you've got long term contracts with the technology

05:05company. So I'm not too worried from from our standpoint, if that bubble does if there is a bubble

05:12and if that bubble does burst for a period.

05:17Mike, just wondering as well, what are you seeing out there in terms of the sentiment among large

05:24investors towards infrastructure investing? What sort of shifts and trends are you seeing?

05:29There's been a good trend into infrastructure for some time, partly because it's a more nascent

05:40asset class. It just doesn't have the history that say real estate or private equity investing does.

05:45So there's just some natural catch up there that's been taking place. But on top of that, there are some

05:51real mega trends globally at the moment that are big supporters of infrastructure investing. And there's

05:58probably three of those I'd call out. There's the digital revolution that you've already touched

06:04on. Of course, that's trillions of dollars of investing over time because of that. You've got

06:09the energy transition mega trend again, trillions of dollars there. And I'd note that Asia is the biggest

06:14market for energy transition in the globe. It's bigger than the US. It's bigger than Europe. So that's

06:19that's another big thematic that interests investors.

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