Sebastian Domenech: «How AI is Reshaping Infrastructure Investment»
Generative artificial intelligence is arguably one of the greatest advancements in human history. The AI revolution is also expected to have a profound impact on the infrastructure sector. This comes with challenges, says Sebastian Domenech, Executive Director, Asset Management, IFM Investors.
In this section, authors comment on economic and financial topics.
Artificial intelligence (AI) is a near-overnight business success, about 80 years in the making. While AI has been present and integrated into businesses for decades in one form or another, the most recent breakthroughs in generative AI have opened up an entirely new world of possibilities. AI, like electricity and the internet, is a general-purpose technology that can impact many aspects of human civilization, and the infrastructure space is no exception.
The rapid adoption of generative AI is creating a surge in demand for key infrastructure to support deployment, thus creating an immense opportunity for investment in new projects. In addition, existing infrastructure assets are expected to derive relevant operational upside from AI adoption, thus increasing the value of these assets to society and their owners.
At the same time, AI poses a host of novel challenges that could have profound implications for human civilization.
Calls for Massive Investment
The recent breakthroughs in AI were made possible by substantial increases in computing power, algorithm development, and the massive accumulation of data humankind has built up over decades.
AI experts agree that the momentum for AI development is unstoppable.
While there is an element of hype at some levels of the «AI value chain», the total potential business value AI can create is so significant, that the fundamentals for continued strong growth in demand for data storage and computer processing power are undeniable.
This calls for massive investment in the complex infrastructure network that is required to run AI. This network is composed primarily of data centers, the electricity that is required to power them, and the fiber network to connect them to users.
Generative AI can Create up to $19.9 Trillion in Economic Value
Generative AI is expected to create sizeable economic benefits, given its potential to transform work and to accelerate technological development across industries. Global professional services company Accenture estimates that Generative AI can create up to $19.9 trillion in economic value by 2038, with a people-centric approach that maximizes productivity growth.
Infrastructure assets are expected to benefit from this positive trend in multiple ways. First, IFM anticipates that the ensuing economic growth will bring increased demand for all types of infrastructure assets, including transportation, utilities and energy-related infrastructure, positively impacting the top line.
Second, a broad deployment of AI is enabling material improvements in efficiency through increases in productivity and optimization of operations across the value chain of infrastructure assets. Together with increased demand, these efficiency gains will have the potential to translate into enhanced returns for infrastructure investors.
Finally, infrastructure assets are positioned to achieve tangible improvement in the quality of services they provide, including safety and customer service, significantly enhancing the value of these assets to end users and society at large.
Profound Impact in the Long Run
While AI will have a broad and profound impact in the long run, we are focusing on its more immediate impact on infrastructure assets.
Similar to other industries, the infrastructure sector faces an intensification of existing challenges, such as cybersecurity threats and the impact of automation on the workforce. It must also contend with new risks, including algorithmic issues stemming from generative AI solutions.
These challenges can have potentially harmful effects on the numerous stakeholders connected to infrastructure assets.
Compounding the challenge, the fast-moving evolution of the technology leads to a growing gap in the development of regulation that will be necessary to manage and mitigate these risks in a consistent and system-wide fashion.
This situation calls for a proactive approach by companies in developing robust frameworks that allow owners and managers to identify, understand, and address the emerging risks brought about by the technology. Below is a non-comprehensive list of challenges posed by AI, which are relevant to infrastructure assets.
AI can Unlock New Efficiencies, Fuel Economic Growth
Generative AI is arguably one of the greatest advancements in human history, with the potential to reshape industries, improve lives, and solve complex challenges.
Its ability to enhance decision-making and drive innovation makes it a powerful tool across sectors, not only for infrastructure.
To fully harness its benefits, it must be developed and implemented in ways that maximize its positive impact while proactively addressing potential risks, such as cybersecurity and misinformation.
With thoughtful integration and responsible adoption, generative AI can unlock new efficiencies, fuel economic growth, and create investment opportunities that drive progress and improve quality of life across society.
Sebastian Domenech, Executive Director, Asset Management, IFM Investors.
He is responsible for identifying and implementing value creation opportunities across the IFM portfolio of global infrastructure assets. He also assists with the implementation of global best-practice asset management initiatives.
