The COVID-19 pandemic put a spotlight on the importance of digital infrastructure, the long-term thesis for data growth and high speed connectivity was suddenly pulled forward. This led to a surge in investments that have both positive and negative ramifications.
On the negative side, some of these new investments came just before the supply chain disruptions and rapid rise in interest rates. Since their business models are often growth platforms, some had to revise down their original business plans due to the changing macro factors. A few markets have also seen widely reported cases of unsustainable infrastructure competition (e.g. UK fiber1). But we are seeing a silver lining.
On the positive side, the surge in digital investments has also accelerated the maturation of the sector. Their business models have now been stress tested by both the pandemic and high interest rates, and risks are now better understood with the market becoming more rational. We are seeing a reset in expectations and an end to the previous landgrab mentality.
We believe that digital infrastructure is entering its next chapter of development, which will be driven more by fundamentals and less by speculation. Inevitably, hype will always be a part of an industry that is exposed to cutting edge technologies. It therefore important to not be caught up in the hysteria, as reported in our 2024 infrastructure outlook. Sophisticated investors should be able to look past the sensationalism and identify opportunities based on real consumer and commercial behavior.