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Could digital infrastructure be an alternative asset for investors?

Could digital infrastructure be an alternative asset for investors?

Monday 03 October 2022

Could digital infrastructure be an alternative asset for investors?


MEDIA RELEASE: The views expressed in this article are those of the author and not Bailiwick Express, and the text is reproduced exactly as supplied to us

The ongoing upgrade to the world’s digital infrastructure is clearly a necessity, given how our physical and digital worlds continue to converge. And for investors, this space provides the attraction of long-term, predictable cash flows that aim to protect against inflation. Ryan Harrison, Head of Canaccord Genuity Wealth Management in Jersey, explains.

Almost two-thirds of the global population now has internet access, a level that has more than doubled since 2010. Even more astonishingly, over the same period, internet traffic (the flow of data across the internet) has risen 15-fold, according to the International Energy Agency.

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Whether you like to call it ‘smart’ or ‘connected’, our homes are becoming increasingly advanced – from televisions and electricity meters to ovens and washing machines. On the roads, our cars have now entered this smart ecosystem, with 25GB of data produced every hour from a connected car, while in healthcare, connected devices will play an increasingly important role in patient monitoring and surgical assistance.

As a result, the digital world is becoming more immersive than ever before. Cisco, a global provider of IT communications equipment including networks and services, predicts there will be three times more connected devices than people in the world by 2023.   

However, the underlying infrastructure is struggling to keep pace with this transformation.

The biology of the internet – the spinal column

The backbone of the internet is a series of fibre optic cables that harness the speed of light. Currently, 98% of international internet traffic is transported through over 400 active subsea or submarine cables, connecting our continents from the coasts of the USA to Europe, Asia and beyond.

There are around 50 new subsea cables under construction, many in partnership with the tech giants. New cables are required to provide internet access to the developing world, and existing cables, typically with a lifespan of c.25 years, need replacing and upgrading. Given increasing demand and lifespan issues, it is estimated that there could be an approximate 40% shortfall in subsea capacity by 2026.

Brains and beauty 

Our lifestyles have adapted to enjoy access to our own content anywhere, on any device – all enabled by cloud computing. In addition, media streaming, video sharing and gaming have grown to dominate internet traffic. This has fuelled the necessity for data centres – the brains of the digital system  –  in a trend set to continue.

The metaverse is a vision for the future capabilities of the internet, where we will be immersed in a digital environment for socialising, learning, working and beyond. This next iteration of the internet will be hugely data-intensive and will certainly exacerbate the demand for global digital infrastructure and storage capabilities.

Arterial lifeblood

The arteries of the digital network are the terrestrial fibre cables and wireless infrastructure assets that connect our homes and devices. Copper wires, but increasingly also high-speed fibre optic cables, provide connectivity to our homes, while wireless communication towers (known as macro cells and small cells) connect our mobile devices wirelessly on the go (e.g. 4G and 5G).

In this space both fibre and 5G rollouts dominate government agendas. For example, the UK government has an ambition to reach nationwide fibre network coverage by 2033 (it is currently only at 28%) and for the majority of the population to be covered by a 5G signal by 2027. Cisco predicts that by 2023, 5G will offer speeds 13 times higher than the average mobile connection speeds.

Global digital infrastructure for the future

While almost two-thirds of the global population enjoys access to the internet, that still leaves a few billion without access, predominately across large parts of Africa and Asia. Here a lack of even basic digital infrastructure serves as a huge barrier to what could be a massive opportunity for social gain – from online education provision and upskilling, to accessing healthcare and basic financial services and products.

Investment in the world’s digital infrastructure will be essential not only to advance the pace of digital transformation globally, but also in supporting the progression of those developing nations that could benefit so much from connectivity. And for investors, digital infrastructure developments may provide long-term, predictable performance with the aim of protecting against inflation. It is for all these reasons that digital infrastructure is now increasingly being seen as an interesting alternative investment asset.

Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. Past performance is not a reliable indicator of future performance.

The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity.

This is not a recommendation to invest or disinvest in any of the companies, funds, themes or sectors mentioned. They are included for illustrative purposes only.

The information contained herein is based on materials and sources deemed to be reliable; however, Canaccord Genuity Wealth Management makes no representation or warranty, either express or implied, to the accuracy, completeness or reliability of this information. Canaccord is not liable for the content and accuracy of the opinions and information provided by external contributors. All stated opinions and estimates in this article are subject to change without notice and Canaccord Genuity Wealth Management is under no obligation to update the information.

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