The digital world is developing at an extraordinary pace, reshaping the way we work, live and play. Such is the speed of change that identifying the long-term winners is particularly challenging. The potential uses for artificial intelligence (AI) alone are mind-blowing, but we still have so much to discover about its power.
We also don’t know if Microsoft or Google will win the battle for supremacy when it comes to search engines; if it will be Tesla or Waymo that develops the best autonomous vehicle; or what the next gaming evolution will be. These are exciting, but uncertain times for investors.
That is why Gravis prefers to focus on the infrastructure assets supporting this “fourth industrial revolution”. Logistics warehouses supporting e-commerce; communication towers enabling 5G mobile networks; data centres housing the next generation of AI; and fibre networks linking everything together are all enabling the digital transformation while offering investors steady growth and income.
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Developing data centres
NEXTDC (Sydney: NXT) is an Australian data centre operator, with a national footprint of 12 highly resilient, certified data centres and five more being planned. It provides secure, reliable high-performance infrastructure in Australia’s most cloud-connected data centre network and is poised for international expansion into Kuala Lumpur, Malaysia and Auckland, New Zealand. On the back of results for the first half of 2024, the share price rose by 13% in a single day.
The strong performance was fuelled by a total revenue increase of 30% for the half year to 31 December 2023 owing to higher power prices and the group’s strategic embrace of generative AI. The robust results were accompanied by a reaffirmation of 2024’s guidance, including net revenue guidance up by between 6% and 9% on 2023. It is our only holding not to pay a dividend, as it reinvests profits into the firm.
SEGRO (LSE: SGRO) is a UK real estate investment trust (Reit), and a leading owner, asset manager and developer of modern warehousing and industrial property. Its portfolio includes big-box and urban warehouses located in and around cities and key transport hubs across the UK and continental Europe. Recent results for the company were strong, with management highlighting growth in rents (the portfolio benefits from index-linked increases on more than half its leases), earnings and dividends, supported by favourable markets for occupiers and active asset management. SEGRO delivered like-for-like rental growth of 6.5%, supporting a 5.7% increase in the dividend for the year to 31 December 2023. With the firm aiming to grow passing rents by more than 50% in three years, the outlook is favourable.
Closer connections
American Tower (NYSE: AMT), one of the largest global REITs, is a leading independent owner, operator and developer of multi-tenant communications real estate. It owns more than 224,000 communications sites across 25 countries and has a highly interconnected footprint of US data centre facilities.
The company has solid fundamentals, with long-term revenue streams, secure real-estate assets and a high-quality customer base. Full-year results to 31 December 2023 indicated that total revenue had increased 4.0% to $11.14bn for the year. Technological changes, such as 5G, will create huge demand for American Towers’ assets over the next few years.
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