Data Centers to Become the Epicenter of AI Investments, Here’s What the Leaders Have to Say

By Muskan Arora

Investors and consultants will ramp up their allocations to data centers through real assets and infrastructure portfolios, to support the growth of AI.

Steven Meier, who handles the $278 billion New York City retirement systems which includes five separate funds, seeks to make investments in software, chip development, data centers and sustainable energy infrastructure.

Keeping in mind AI’s impact on energy and environment, Meier says there are significant opportunities in debt strategies that support the development of that critical infrastructure.

The global infrastructure market size is expected to grow around 27.5% from 2024 to 2033, as per a recent precedence research.

In many ways, investments happening in private equity incorporate AI, which allows Meier to invest particularly through buyout and growth strategies. He anticipates venture capital to be an area of opportunity in the coming years.

“Software is something that can typically have a significant amount of positive leverage, because the technology once it's developed, is easier to deploy with margins that are pretty significant,” said Meier.

The system isn’t particularly targeting managers in AI but has active investments in both public and private equity holdings in chip and software companies both in U.S. and emerging markets.

However, while choosing external managers, Meier is focused on understanding how AI is impacting investment opportunities around its development and deployment.

Larry Fink, CEO and Chairman of BlackRock also highlighted huge growth opportunities in AI infrastructure and collaborating with technologists to build data centers in the US. 

Fink, sharing the same sentiment as Greg Jense, co-CIO of Bridgewater, spoke about AI boosting productivity, The increase in productivity leads to lower costs of production for businesses, which aids in price reduction and cheaper goods and services, which, in turn, helps to reduce inflation.

Talking about Nvidia and the production of microchips, Tim McCusker, CIO of NEPC spoke about AI being one of the most scalable platforms as compared to the previous technological shifts seen.

“With the new activities and efficiency benefits that would be created by AI, in the current times, more than 80% of the growth is focused in China, Europe and North America,” said McCusker.

China is doing a tremendous amount of research and pouring a tremendous amount of money into artificial intelligence,” added the CIO.

By some estimates, Asia Pacific region will witness the fastest growth in AI in the next decade, with North America’s infrastructure market sizing up exponentially by 2033.

Not just McCusker, Christopher Ailman, CIO of CalSTRS also talks about the high demands of electricity and water by AI operations, with implications on sustainability.

“If you look at the amount of chips made by Nvidia last year, they draw the power of the entire city of San Francisco,” said Ailman, in a board meeting.

“In some parts of this country, you're tripling the electricity demand at a time where we need to change how we generate electricity. Water is further used as a cooling agent for these AI centers,” he added.

To reduce the adverse impact of developing data centers, Meier said he is focused on adopting investments in clean energy while investing in data centers.

Using AI for decision making

While speaking to external managers, Meier is also studying how it can be used in his own investment system.

“We are also developing  use-case in terms of how we can deploy artificial intelligence within our offices to be more efficient. We currently use it to support writing analyses and research and data analysis to improve our performance in terms of our quantitative system development. It's a wonderful tool in terms of its pilot capabilities helping with programming,” said Meier.

Jeremy Wolfson, the CIO of LA Water and Power is also in early stages of beta testing AI technology to develop cases to not only streamline its internal investment process but also identify the best investment ideas with limited resources.

“We believe AI will result in better idea generation, portfolio construction, risk management, and ultimately increased alpha generation,” said Wolfson.

With the support of AI, Wolfson aims to enhance risk management, identifying market trends and developing new insights, speedy due diligence to increase the deal flow and automating manual processes to focus on higher-value work.

Mark Steed, CIO of $21 billion Arizona Public Safety Personnel Retirement System, has been studying AI for over a decade and highlighted “using supervised and unsupervised models” to make improved investment decisions.

“The hard thing about data is if you're investing in funds or even direct positions, and you're extracting all of the unstructured data and trying to make it structured so you can use it but you're also creating your own variables along the process,” said Steed, who currently has two data scientists on his investment team.

That as you're building algorithms to help you help support decisions, that they're as pure as they can be. I think for us, we'll continue to systematize a lot of our investment logic,” he added.