Is the “AI Infrastructure” trade getting too crowded for smart money?
Investcorp ($60B AUM), the Middle East’s largest alternative investment firm, stated at Davos today that it is stepping back from big-ticket data center investments. While billions continue to pour into the sector, Investcorp CIO Rishi Kapoor argues the risk-return profile no longer makes sense.
📉 THE RATIONALE:
- Yield Compression: “Too much capital has gone into it. Returns have gotten compressed to levels where arguably, you can get a better risk-return trade-off in other areas,” Kapoor told Reuters.
- The Risk: Unease around sky-high valuations and the potential for an “AI Bubble” is driving the firm to seek better value elsewhere.
🏗️ THE PIVOT (Where the money is going): Instead of physical infrastructure, Investcorp is targeting “resilient services” that offer insulation from geopolitical shocks:
- Sectors: Professional Services, Healthcare, IT Services, and Transportation.
- Geographies: High conviction in the U.S., the Gulf, and India.
🇮🇳 THE INDIA BULL CASE: Kapoor highlighted the red-hot Indian market (world’s #2 for equity issuances) as a key focus area.
- The View: The momentum is sustainable, with IPOs proving to be a “very valid, viable route to monetisation for private sponsors.”
- The Pipeline: Investcorp hinted at a handful of potential asset listings in 2026.
💡 ANALYST TAKEAWAY: When a $60B manager says a sector is “too crowded,” it’s worth listening. The data center trade has been the “easy bet” for three years. Investcorp’s pivot suggests that the alpha has moved downstream—away from the expensive physical layer (CapEx heavy) and into the service layer (OpEx heavy) where cash flows are more predictable and less dependent on acquiring NVIDIA chips.
👇 Infra Investors: Have data center cap rates compressed too far, or is the growth story strong enough to justify the premium?