Artificial intelligence (AI) is the big theme in the markets this year. With NVIDIA once again rising by nearly 200% percentage points and AI software companies putting out strong results, the tech sector is on fire. Many AI stocks remain interesting buys.
But two years into the AI revolution, AI data centres may be better investment opportunities than AI software makers. Data centres consist of huge numbers of servers running NVIDIA GPUs, that process the AI software designed by companies like Microsoft, Alphabet, and Meta Platforms. AI data centre companies are considerably cheaper than AI software companies. They also arguably have a longer growth runway. In this article, I will explore one Canadian conglomerate that is doing incredible things in this space.
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Brookfield
Brookfield Corp (TSX: BN), via its partially owned subsidiary Brookfield Infrastructure Partners (TSX: BIP.UN), is leading the charge in AI data centre development. The company invests in infrastructure of all types (energy, utilities, water, etc), but data centres have become an area of particular focus in recent years. Ever since ChatGPT went viral on Twitter and became the fastest-growing app in history, companies have been scrambling to get their AI strategies up and running. Brookfield is buying up AI data centres in order to serve them the computing power they need.
AI data centres
Brookfield Infrastructure Partners owns a number of AI data centres that serve computing power to companies across North America. These include the following:
- The Ascenty data centre in Brazil
- The TDF group of cellular towers
- The Cyxtera data centres in Texas
These assets give Brookfield Infrastructure Partners considerable strength in the AI industry, both in North America and emerging markets.
Renewable power for AI developers
AI infrastructure isn’t the only way that Brookfield is getting exposure to the AI space. The company is also supplying renewable power to AI companies via Brookfield Renewable Partners (TSX: BEP.UN). Brookfield Renewable Partners is a company that invests in renewable power across Canada, the U.S., and Latin America. Just recently, it inked a deal to supply Microsoft with 10.5 gigawatts of power over several years. This deal could provide billions in revenue and, if it goes well, make Brookfield the renewable supplier of choice to the U.S. tech sector.
Valuation
As we’ve seen, Brookfield has considerable indirect exposure to generative AI through its two subsidiaries, Brookfield Infrastructure Partners and Brookfield Renewable Partners. It’s a real mover and shaker. With all these exciting things Brookfield is doing, you’d expect it to trade at a hefty price tag. But that’s not the case. BN stock is actually relatively cheap, trading at 14.1 times forward earnings, 0.86 times sales, two times book value and 14 times cash flow. It isn’t quite the deep value play it was when I started covering it last year, talking about its discount to net asset value, but it’s relatively cheap.
Foolish takeaway
Brookfield is one of the most exciting companies in the world of AI-adjacent services. Supplying data centre capacity as well as power, it has many vectors to success in the ever-changing world of generative AI. I’m long BN shares, and I’m quite content to be.
