Digital Infrastructure Equity: Why Scale Isn't Everything
Small-scale digital infrastructure, especially edge data centers and bulk fiber platforms, is emerging as an increasingly attractive and undervalued opportunity. These assets can offer critical infrastructure characteristics, inflation protection potential and value retention, with speed, flexibility and resilience needed in a rapidly evolving digital world.
The digital economy is growing more complex, localized and bandwidth intensive. Despite this, most of today’s digital infrastructure investment remains focused on large hyperscale builds that exhibit long build timelines, high capital intensity and are increasingly exposed to grid, regulatory and latency constraints.
Small-scale digital infrastructure, particularly edge data centers and bulk fiber platforms, may be an attractive and underpenetrated opportunity in our view. Small-scale assets retain the characteristics that make large-scale infrastructure compelling: intrinsic value of the hard asset, physical durability, inflation protection potential and contracted revenue. Facilities operate under medium- or long-term service agreements with built-in inflation escalators, diversified tenant bases and limited customer concentration. The capital structures tend to be conservative, with modest leverage and the flexibility to strategically reinvest cash flow towards future growth.
Unlike hyperscale assets, small-scale infrastructure thrives on proximity. Positioned close to users, digital services and industrial zones, it is designed to serve the edges of networks. These assets can benefit from established customer bases and strategic locations. Their simplified and modular profile can help enable faster deployment timelines, lower permitting risk and better alignment with local demand.
What Sets It Apart
Agility is a key differentiator of small-scale digital infrastructure. While large-scale infrastructure assets can offer economies of scale, they also can experience grid interconnection delays and customer concentration risk. Smaller assets can move faster, provide greater security and respond to localized demand shifts.
