Data Center Developer's Strategic Positioning Drives Morgan Stanley Upgrade of Brookfield Infrastructure to "Overweight"

On Monday, Morgan Stanley upgraded Brookfield Infrastructure Partners LP (BIP.US) from "Equal-Weight" to "Overweight," setting a price target of $45. The upgrade was attributed to the company's accelerating growth momentum as a leading data center developer. Concurrently, the firm maintained its "Overweight" rating on Brookfield Renewable Partners (BEP.US) and raised its price target from $38 to $42.

Analyst Robert Kad noted that Brookfield Infrastructure is a prominent data center developer in Europe and North America with significant competitive advantages. Leveraging the comprehensive presence and development capabilities of its parent company, Brookfield Corp (BN.US), in artificial intelligence (AI) infrastructure, the company is well-positioned to meet the computing infrastructure demands of sovereign entities and major cloud service providers.

Kad highlighted that, in addition to an estimated annual investment of approximately $500 million in AI infrastructure with potential for returns exceeding expectations, several factors are expected to benefit Brookfield Infrastructure. These include anticipated large-scale investment cycles across its business segments, stabilizing and declining interest rates, and a weaker U.S. dollar. He forecasts that the compound annual growth rate (CAGR) of funds from operations (FFO) per unit will increase from 7.1% for the 2023-2025 period to 12.5% for 2026-2028.

Regarding dividends, Kad projects that Brookfield Infrastructure will achieve 5% annual dividend growth. He believes that the growth in operational cash flow can support an increase in dividends toward the higher end of the target range of 5% to 9%.

Furthermore, Kad expects the valuation gap between Brookfield Infrastructure and Brookfield Renewable Partners and their respective tracking stocks—BIPC and BEPC, which are separately traded but tied to the parent company's operations—to narrow. Based on this outlook, he downgraded both tracking stocks to "Underweight," with price targets of $45 for BIPC and $48 for BEPC.