Weekly market commentary

The latest earnings from mega cap tech are still showing massive spending on AI, even amid market volatility and dispersion. We see a clear beneficiary: infrastructure. Most investors could increase their exposure to this diverse asset class, in our view. Beyond the AI buildout, multiple mega forces support long-term demand. Valuations look low to fair versus history. And cash flows that often adjust with rising prices can help hedge inflation risk.

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A valuation discount
Listed infrastructure vs MSCI World valuations, 2010-2025

Infrastructure, traditionally viewed as a stodgy defensive sector, is now at the center of interlocking mega forces. Geopolitical fragmentation is leading governments to emphasize energy security. Population growth in emerging markets requires upgrading urban infrastructure. Nuclear and renewable power for the low-carbon transition often need more up-front investment than traditional energy sources. Yet valuations, weighed down as interest rates have climbed, do not reflect this growth potential. Listed infrastructure equities trade at nearly 20% below their long-term average on enterprise-value-to-EBITDA multiples – below levels at the financial crisis and similar to the COVID shock. See the chart. Private infrastructure assets trade closer to long-term averages, we believe, but lets investors tap a much wider universe of assets.

Investors can tap infrastructure through a wide range of sectors and exposures. It spans transport, energy, telecom and digital networks and water and waste management, and can be accessed through debt and equity in both listed and private markets. Yet most investors are under-allocated, even the large institutions that historically dominate illiquid asset investing. Analysis from our recent paper (for professional investors only) shows that a typical U.S. corporate pension with similar risk to a 70/30 equity-bond split has infrastructure-like exposure of about 4 to 5% through equity and credit holdings such as utilities. Why so little? Infrastructure lacks the familiarity of mainstream stocks and bonds, and its long investing horizons has made it the purview of select institutional investors. Yet our analysis shows that corporate pension funds can more than double their current levels of exposure for increased portfolio efficiency: greater return for similar overall risk.

A helpful hedge against sticky inflation

Infrastructure holdings are particularly helpful when supply chain constraints stoke inflation and mega forces cloud the long-term outlook. Growth is solid right now, but inflation is getting “stickier,” as Federal Reserve Chair Jerome Powell said after holding policy rates steady last week. Investors need income sources that have a low risk of eroding in such an environment. Infrastructure’s cash flows are often supported by regulation or long-term contracts that adjust with inflation, offering predictable income. We especially like infrastructure equity among private growth assets on a five-year-plus horizon.

What are the risks? First: an AI bust chokes data center and energy infrastructure demand. We see this as overblown for the sector. The reason: strong legal protections. Companies pay for space even if they don’t use it; early lease terminations are limited; and tenants front any increases in energy costs. Second: the risk of rising real rates raising the return bar for infrastructure assets. This risk has been front and center recently, with a rapid rise in the term premium pressuring the U.S. dollar and Treasuries as global investors rethink U.S. exposure. We see the nomination of Kevin Warsh as Federal Reserve chair mitigating the risk for now thanks to his financial crisis experience and likely focus on preventing global spillovers.

Our bottom line

We like infrastructure. Mega forces like AI are driving long-term demand, but valuations don’t yet reflect that. We think most investors can allocate more and particularly favor infrastructure equity among private growth assets.

Market backdrop

Stocks were little changed on the week, even as the S&P 500 notched a 1.7% intra-day decline last Thursday on jitters over AI investment. We see the latter as a reshuffling of winners, not as backlash against the AI trade. The U.S. dollar plumbed four-year lows, then perked up on news of the Warsh nomination. Precious metals that had become perceived safe havens during the term premium shock saw their biggest losses since the 1980s.

We look to U.S. jobs data for a cleaner read on the labor market. A “no hiring, no firing” stasis let the Fed trim rates last year, but wage pressures could limit cuts in 2026. The bigger question: How would Fed chair nominee Kevin Warsh navigate pressure to cut rates? Given Warsh’s financial crisis experience, we think he will focus on preventing global market spillovers. We see this supporting the U.S. dollar and easing the risk of spikes in long-term yields.

Read our past weekly market commentaries here.

Big calls

Our highest conviction views on six- to 12-month (tactical) and over five-year (strategic) horizons, February 2026

Tactical granular views

Six- to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, February 2026

We have lengthened our tactical investment horizon back to six to 12 months. The table below reflects this and, importantly, leaves aside the opportunity for alpha, or the potential to generate above-benchmark returns – especially at a time of heightened volatility.

Euro-denominated tactical granular views

Six to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, February 2026

We have lengthened our tactical investment horizon back to six to 12 months. The table below reflects this and, importantly, leaves aside the opportunity for alpha, or the potential to generate above-benchmark returns – especially at a time of heightened volatility.