AI's computing demands sparked data center investing boom

AI's computing demands sparked data center investing boom

Plus: AI investment dominance may signal lack of focus, and robots take over the warehouse


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Private investments in data centers

(PitchBook data)

GPs and institutional investors see long-term data center projects as a relatively safe way to capitalize on the AI revolution. Compared to investments in individual AI-focused companies, large infrastructure projects, such as those required for data center development, reward investors with contractual cash flow from a suite of high-quality tenants.

To some, this market holds greater appeal than traditional real estate or infrastructure investments, reports PitchBook's Madeline Shi.

“In some ways, it’s like selling shovels to people looking for gold,” said Jon Mauck, the global head of data center strategy at Digital Bridge, one of the largest investors in this space.

The high demand, fueled by tech giants and AI startups competing for access to prime locations, allows builders and operators to command premium rents and secure long-term leases with ease.

“I don’t know who is going to find gold or be the largest AI platform, but whoever is doing anything in that world needs an environment, i.e. a data center, to deploy it,” said Mauck.

The supply-demand imbalance has led to developers often pre-leasing a major share of new data center capacity with prospective tenants before construction begins. By the first half of 2024, a combined 3,872 megawatts of new data center capacity was under construction across the eight largest US markets, according to real estate consulting firm CBRE, and nearly 80% was pre-leased.

“The demand and supply fundamentals will be solid for a long time, given the exponential growth of data,” said managing director Casey Miller of Principal Asset Management.

The intense demand for data centers translates into attractive payouts for investments in this market, which range from high-single-digit IRRs to those in double digits, depending on the risks investors are willing to take.

Given its long-term investment horizon and attractive returns, the world’s largest LPs are keen to invest.

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AI startups grabbed third of VC dollars in 2024

One out of every three VC dollars invested in 2024 went to an AI startup—and in North America, the vertical grabbed almost half of all VC dollars.

But to some investors, the continued coalescence indicates a worrying lack of focus in the market, writes technology reporter Jacob Robbins. Are the right kinds of AI companies getting capital?

“Too much money is being focused on the foundational model and infrastructure layers,” said Shashank Saxena, managing partner at Sierra Ventures. He explained that investors need to look for AI opportunities elsewhere: “I don’t think enough has gone into the application layer, which will produce long-term returns.”

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AI and machine learning share of global deal value 

(PitchBook data)

How warehouse robotics can deliver for investors

(Paul Marotta/Getty Images)

PitchBook’s latest Emerging Space Brief explores the world of warehouse robotics: the technology used to automate the handling and fulfillment of orders within logistics facilities.

From autonomous robotic systems to drones, the adoption of these technologies has been turbocharged following an unprecedented labor shortage—and startups are cashing in. Pickle Robotics, which specializes in robots used for unloading, raised a $50 million Series B while Dexory raised an $80 million Series B for its robots, which automate data collection and inventory management.

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