Meeting clients at the intersection: Infrastructure + AI

Title: Infrastructure, AI & Energy: Navigating the Golden Age of Infrastructure Investing

Description:

Infrastructure investing is no longer a niche play — it’s at the center of today’s global economy and portfolios. In this episode of The Bid, we dive into why infrastructure investing is having a moment, how it connects to AI, and what megaforces are shaping the next decade of growth.

Host Oscar Pulido sits down with Balfe Morrison, Head of Listed Infrastructure Strategies, to explore the golden age of infrastructure investing. From data centers powering artificial intelligence to pipelines driving energy security and railroads transforming transportation, infrastructure is proving to be one of the most durable and exciting asset classes in capital markets today.

Sources: FTSE Russell as at 29 August 2025, FTSE Global Core Infrastructure 50/50 Index; U.S. Department of Energy report via Lawrence Berkeley National Laboratory Dec 2024; Data Centers Drive Up Electricity Demand, Causing Concern for GridOperators Institute for Energy Research 2024; Greenhouse Gas Emissions from the Coming Wave of US Natural Gas Transmission Pipelines, June 2025, CEEA; Assessing the U.S. Power System's Ability to Support Data Center Growth, Schneider Electric June 2025; Amazon Q2 2025 Earnings Call;

Infrastructure investing, AI investing, Stock market trends, Energy transition, Utilities

Written disclosures in each podcast platform and each episode description:
This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener. Reference to the names of each company mentioned in this communication is merely for explaining the investment strategy and should not be construed as investment advice or investment recommendation of those companies. For full disclosures go to Blackrock.com/corporate/compliance/bid-disclosures

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Oscar Pulido: Infrastructure is having a moment. Once considered the domain of institutional investors and private markets, it's now becoming a central theme in public portfolios. From data centers powering AI to the energy systems, driving the low carbon transition infrastructure is evolving and expanding. So, what's behind this surge in investor interest? How should we be thinking about infrastructure's role in the global economy and our portfolios?

Welcome to The Bid where we break down what's happening in the markets and explore the forces changing the economy and finance. I'm Oscar Pulido.

Coming up, I'm joined by Balfe Morrison, head of listed infrastructure strategies to explore the growing relevance of infrastructure investing. We'll unpack the differences between public and private market access. Discuss why this is a golden age for infrastructure and examine how mega forces like AI and energy transformation are creating new opportunities. We'll also look at which sectors and regions are drawing attention and what investors should keep in mind when adding infrastructure to their portfolios. Balfe, thank you so much for joining us on The Bid.

Balfe Morrison: No problem. Thanks for having me.

Oscar Pulido: Balfe, we're here to talk about infrastructure and investing in infrastructure. It's safe to say this is a theme that has become more popular in recent years, a theme that investors are having to consider more for their portfolio. So, maybe before we dig in and, in more detail, why don't we start with just the definition when we talk about infrastructure, what are we talking about?

Balfe Morrison: So, we think about infrastructure, we're thinking about the companies and assets providing, really the most important services in the world that are required to maintain our way of life.

To get more specific, we're talking about the utilities providing, electricity, water, and gas for heating. We're talking about the oil and gas pipelines that are providing the gas to the utilities and providing the gasoline and transporting the jet fuel for our cars and our airplanes. We're talking about data centers where a lot of our data is stored but also is where AI is effectively generated. Tower companies, that are responsible for transmitting all of our mobile data. So, when we're making calls or working on our iPad. We're talking about on the transportation side, airports, which are the gateway to both kind of leisure travel as well as business travel, and then also toll roads and railroads, which are the critical infrastructure for both commuter and freight travel. So, a lot there. But these are the companies providing the most critical base services for our quality of life.

The other way I think about it, these are the companies that we sometimes take for granted and only really think about when stuff goes wrong, or they get too expensive. But for the most part, the companies that we're investing in, are providing a really good service at really fair prices.

Oscar Pulido: You mentioned these are essential services and a lot of the examples that you gave are things that we intersect with in our day-to-day life, in multiple ways.

I think when we talk about investing in infrastructure, it's historically been associated with investing in private markets and that was the way you could invest in infrastructure, and it was accessible perhaps to the high-end, high net worth investor or institutional investor. But increasingly the ability to invest in infrastructure is also now accessible through the public markets and, more accessible to retail investors. So, talk to us a little bit about maybe some of the similarities and differences about investing in infrastructure through public and private markets.

Balfe Morrison: So, I'll start with the similarities and going to the differences. And there, there are more similarities and differences. And when you think about listed versus private infrastructure, the underlying assets are the same. So, a gas pipeline, a data center, a solar farm, a railroad, the asset makes the, their money the exact same way if it's owned by a company in a listed fund versus, owned in a private fund, same way, regulated the same exact way. So, the assets are the exact same, which is really the most important thing.

In terms of returns, over a long period of time, pretty highly correlated. and in you thinking about, infrastructure as an asset class, these companies and these assets tend to generate more of their total return from dividends and income, as a percentage of the total return versus the broader market.

In terms of differences, the most obvious ones, listed funds are going to have a little bit more liquidity. Where we see the biggest difference is in, sector composition. So, thinking about the listed infrastructure space, big part of the market cap, call it like 50%, give or take is in the regulated utility space. So, the companies that own the poles and the wires and the power generation, it makes up a very big part of the listed infrastructure universe globally. So that sector composition is more weighting towards utilities a little bit more onto the data centers on the private side is really the biggest difference.

We don't think one is better or worse than the other. I'm really excited about what we're seeing on the utility sphere I'm biased there, but, data centers are great too, and they're seeing a ton of growth and we think that, for investors that are able to gain access to either, or both, we think of them as compliments in a portfolio and infrastructure allocation but both are great. And over a long term should return comparable figures.

Oscar Pulido: And as you were talking about the similarities and differences, I was thinking how they both sound like interesting investment opportunities. Perhaps the difference in, in sector composition being the thing that you have to take note of as you're choosing between the two.

Larry Fink BlackRock's chairman, and CEO has described this as a golden age for, infrastructure investing. Why do you think he uses that term and do you agree with that term when you think about the space?

Balfe Morrison: I would definitely agree, and I'd say outside of the shale, oil and gas boom in the early s early 2010s, this is the best growth environment we've seen for infrastructure. There are a lot of positives happening that are affecting pretty much all the sectors that I laid out to start the conversation.

I'll start with the energy and electricity demand. So, here in the US we've effectively had no electricity to demand growth for the better part of two decades. That is changing. We see electricity to demand in that low single digit range going forward, maybe even a little higher in certain regions. It doesn't sound like a lot, but it is a lot more than zero. What is driving that? A lot of it is the energy needs, of AI. So, the hyperscalers, Meta Google, Amazon, et cetera, are spending hundreds of billions of dollars on AI infrastructure to develop their own models and to help others on their AI journey. A big part of those investments are the data centers that consume a ton of electricity and energy to effectively generate AI. And the companies that are benefiting from this are the utilities.

My colleague Will Su on a previous Bid podcast mentioned how, electricity demand from data centers is growing at about a 20% clip, annually expected through the end of the decade, growing from about 4% of current US electricity demand to about 10 to 12% by the end of the decade. That is impossible without the utilities that I mentioned, which are a big part of our universe here in the listed infrastructure space.

But it's not all just about AI and utilities. One other dynamic we're really excited about, in terms of the infrastructure growth going forward is the natural gas pipelines. Between, more supportive, administration as it relates to, natural gas pipeline infrastructure growth, the surplus of a cheap natural gas that we have here in the US that's allowing more exports to our allies in Europe and growing Asian economies. And frankly, also the energy needs domestically associated with AI. We're seeing a boom in natural gas infrastructure growth.

So, to quantify it a little bit, per the center for Energy and environmental analysis, which is a climate focused think tank, there is 67 billion cubic feet a day of natural gas pipeline infrastructure being built today. That probably means nothing to you and most of the people listening, but to put into context, that infrastructure is going to be coming into, coming online between this year and 27, that is about three times the amount of natural gas pipeline infrastructure that was built between 2022 and 2024.

It is a big amount of natural gas pipes being built that is going to, result in a lot more growth in the natural gas space. those are 2 of the most promising and exciting dynamics in infrastructure today but many others going on as well.

Oscar Pulido: You mentioned Will Su, which was a great callback to an episode that we did. One thing that both you and he did was throw out a quantity and a number to reflecting some growth aspect. In your case, you were just talking about natural gas pipeline build out, Will talked about the sheer energy demand that was being created from all of the build-out of data centers and the artificial intelligence theme. So, it's clear that this is, more than just a regular theme that we're talking about. We're talking about exponential type growth that is driving infrastructure.

Maybe talk a little bit more about how AI and infrastructure intersect. This sounds like it's going to be a pretty persistent relationship for at least the near term, but maybe even longer.

Balfe Morrison: The way I think we think about it, all this energy demand from AI and developing AI is very positive for infrastructure- particularly energy infrastructure. it also inverted and say that it is, if you're bullish AI, bullish adoption, you have to be bullish, power and utilities because it, one cannot, you cannot develop AI without the power and the, and without the electricity. And so, it is really positive.

And it's not just me, the listed infrastructure guy saying it. Listen to the developers and the operators themselves. Schneider Electric, which is a key AI infrastructure component, supplier, did a survey recently US data center developers, and, in that survey, they asked what are the big bottlenecks developing data centers and, which again is where the AI is generated. 92% said it is procuring power and, accessing the grid. To put in context, only about 80% said it was getting the chips and getting the land. The electricity in the grid is the bigger issue. So, this is a big deal.

And getting even more specific and more recently, Amazon, CEO and the latest earnings call noted, the biggest impediment to growing their AI business and franchise. AWS is the power. And then finally, the one last thing, I'd say Oracle, which is partnering, with open AI now, and a big part of the Stargate Enterprise noted that in their most recent earnings call, look, it's not the biggest impediment moving faster again, is the data center, which is mostly a power issue. They actually said they have no issue getting GPU chips. So, it's just to emphasize this is a very symbiotic thing in relationship. And so, it's, impossible to be to be bullish AI without being bullish on the growth for utilities and power sector.

And so, it is a really exciting time to be in the sector, and you really can't be again, cannot be bullish AI without being bullish on the power and the energy providers for it.

Oscar Pulido: We've talked about ai, we've talked about energy, you mentioned natural gas. You also talked about that infrastructure has a lot of different types of sectors that, comprise this theme. So, what other areas of interest are you seeing?

Balfe Morrison: You're right, it is not all ai, not all energy. We do plenty of look at plenty of other sectors. one other area that we, we haven't really talked about, is the transportation space, that is from a market cap perspective about 30% of the listed infrastructure universe. A big part of that is the, actually the North American railroad sector, where we actually saw a very, interesting, transaction get announced and proposed a few weeks ago, Union Pacific, the Western Railroad announced an agreement to acquire Norfolk Southern, which is a big East Railroad. This could be a big mega deal, $200 billion plus, enterprise value combined entity, which is, really exciting for the sector for a number of reasons.

The rail sector has really struggled the last few years; we do think that a transcontinental merger would reinvigorate growth of the sector and that growth is likely going to come from taking market share from other forms of transportation.

And namely the trucking sector, which still represents over two thirds, or 70% of total freight revenue is the trucking sector, rails are only 7%. We think that this deal could potentially to further M&A activity in the sector, which again, would reinvigorate growth, probably lead to further multiple expansion, and just better performance for the sector. that's another area that we're pretty excited about, within the listed infrastructure space.

Oscar Pulido: And it's an interesting contrast 'cause when we talk about AI, we think about the new economy and the economy of the future. And when you talk about railroads, I think about like the industrial revolution and just the original foundations of the economy when you're transporting goods from coast to coast. But that still takes place. And as you said, there's an opportunity for the railroad sector to perhaps eat into some of the revenue that is right now taken by the trucking industry.

Balfe, when you think about infrastructure, you mentioned all these essential services. these are essential services, I think, regardless of where you are in the world. So are there regions, in particular that catch your interest? Is this more of a US story? Are there areas outside the US that, people should be paying attention to?

Balfe Morrison: Yeah, definitely. we invest globally. We are actually really excited about the European utility sector and, that's a region and a sector where they don't, aren't necessarily seeing the AI kicker that the US utilities are seeing. To put in perspective, Vertiv, which is this kind of, AI infrastructure data center, darling, highlighted that they're growing their US and, Asian business in the 30 to 40% range. in Europe it's high single digits to frame where, Europe is on its data center and AI buildout journey. But there are still really exciting things happening in the European utility space.

And then, from a decarbonization perspective, Europe is still resolute and focused on decarbonizing the grid, building out renewable infrastructure. that is also pushing up the growth on the European utilities as well. And in thinking about the US versus the European utilities, what we also like is the US is a very high growth dynamic market consensus growth, earnings growth for the S&P 500 over the next three years is about 12%. We'll see if it gets there, but if you look at the broader European market, it's only six.

So, we think that as the market recognizes this dynamic of kind of the higher growth utilities with lower risk than the overall European market. We are actually really excited about the re-rating opportunity for the European utilities, even though there isn't really an AI data center energy inflection story to date.

Oscar Pulido: You mentioned Will Su earlier, but as you're talking about European utilities, you're reminding me of some of the comments that Helen Jewel has made on previous episodes about the opportunity in that European sector, and not only the income that it pays, but that its earnings growth. That also is what makes that sector interesting.

Balfe, if we zoom out now and you've talked to us about infrastructure as a theme, you've compared. the similarities and differences between the private infrastructure space and the public infrastructure space, which is more your day to day. For somebody who's considering an investment in the public infrastructure strategies or sectors, what should they be thinking about when it comes to their portfolio?

Balfe Morrison: Sure. So, we think this is I hope it's coming through a really exciting, the word generational, I think is apt opportunity to be investing in infrastructure kind of broadly. when you think about the listed space, historically, it's provided inline returns. So, equity-like returns to the broader market over a long period of time with lower volatility and higher income, that's historically. What we see going forward. We think earnings are accelerating.

In terms of risks and opportunities, this is still a defensive asset class. It meaningfully outperformed in April during the kind of the liberation day peak tariff and trade war risk period. So, we're not really that worried about the economy. We talked a lot about AI and I think there is a lot of, even the people who believe that the growth is going to come driven, on the back of a lot of this accelerating energy demands from AI and data centers, there's some concern that what happens if, AI, isn't, doesn't, the projections don't turn out and maybe the adoption rate isn't as fast or the hyperscale stop investing? what we really like is that the sectors and the utilities and the pipeline companies have contracts with the hyperscalers. And so, there is not going to be any earnings cliff or big earnings hit if the AI story is not what we all think it is. And so, you're much better protected from that kind of risk versus I think other parts of the kind of AI infrastructure or picks and shovels of value chain.

So, we still think earnings growth is going to accelerate, it's still going to be defensive and you're still going to get, that above average yield. So, we think it's a great time to invest in a great fit for any equity portfolio.

Oscar Pulido: Balfe as I said at the beginning, infrastructure is definitely a theme that we're talking more about these days than we had in what I can remember. At least going back, it's a theme that seems pretty persistent. You’ve helped us learn a lot more about the different sectors and the different ways and opportunities to invest in this theme. Thank you for doing that, with us, and thank you for doing it here on the Bid.

Balfe Morrison: Thank you.

Oscar Pulido: Thanks for listening to this episode of The Bid. If you've enjoyed this episode, check out my conversation with Helen Jewel on episode 212 where we discuss how low carbon infrastructure will play a role in the evolving energy landscape and subscribe to The Bid wherever you get your podcasts.

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Spoken disclosures at end of each episode:

This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener.
For full disclosures go to Blackrock.com/corporate/compliance/bid-disclosures

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