Infrastructure lies as much at the heart of digital developments as any other, argues Matthew Norris, investment adviser to the VT Gravis Digital Infrastructure Income Fund.
The digital world is developing at an extraordinary pace, and we are often asked, how does an investor capture the opportunities when everything is moving so quickly? Doing so is certainly challenging. That’s partly why we like the infrastructure assets supporting the software, not the software – or indeed the hardware – itself.
For example, we don’t know if Microsoft or Google will win the battle for supremacy in the search engine world, or indeed if ‘digital personal assistants’ will replace the search engine altogether. Neither do we if know if it will be Tesla or Waymo that develops the best autonomous vehicle. What we do know is that all market participants are going to require data centres to manage, monitor and secure the data they need.
The mass production of data
In his 1928 book Propaganda, author Edward Bernays commented that “Mass production is profitable only if its rhythm can be maintained.” I think of digital technology and the data it requires in a similar way.
Consider this: Intel estimates that autonomous vehicles alone may generate 4 terabytes of data each day*. That’s the equivalent of an average person using a smartphone for 60 years**.
There is always the threat of future technologies – low orbit satellites being a notable example. In time they could compete with infrastructure on the ground but not in the foreseeable future. Why? The mobile network operators have simply invested so much in terrestrial based physical infrastructure attached to communication towers (owned by next generation infrastructure companies such as American Tower, Cellnex and Crown Castle International), that they are not going to switch them off overnight. They are going to want to get a big payback first.
What’s more, latency – the amount of time it takes for data to travel from one place to another through the internet or indeed through a network – takes longer travelling from the ground to a satellite and back down again, than via a communication tower. Ask any gamer what they would prefer, and a ‘lag-free’ tower is likely to be the answer.
Kenneth Rogoff, professor of economics and public policy at Harvard University recently highlighted*** US economist Robert J Gordon’s view that ‘post-1970s inventions – even the computer revolution – are not nearly as economically important as, say, the steam engine or electricity generation’ and we would argue the same for the physical digital infrastructure.
The so-called ‘Fourth Industrial Revolution’ in which digital technologies pervade every area of life, from how we work and play, to how we navigate day-to-day life, is well underway and the evolution from analogue to digital has happened startlingly quickly. The technology now at our fingertips operates at a speed and sophistication that would have once fallen well beyond the reach of many our imaginations.
*Source: Colocation America, Autonomous Cars as a New Generation of Data Center Requirements, 16 July 2020
**Based on average data consumption per month of 5.6GB, source: 3G, How much data do I need? 24th January 2023
***Source: The Guardian, Chinese economic slowdown is a result of debt supercycle, 21st August 2023
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Past performance is no guarantee of future performance. The writer’s views are his own and do not constitute financial advice.
Gravis Advisory Limited is an Appointed Representative of Valu-Trac Investment Management Ltd, which is authorised and regulated by the Financial Conduct Authority.
