Investors with income in search of a means of playing the boom of artificial intelligence can turn to municipal obligations linked to data centers, according to Nuveen. Many things have been done with the need for data centers to provide AI infrastructure, and thereafter, the growing demand to feed them. Energy consumption by data centers is expected to represent almost half of the demand for electricity growth by 2030, according to a new report by the International Energy Agency. The issue of public bonds has totaled $ 26.8 billion in 2024, against an annual average of $ 14 billion in the past 10 years, Nuveen said in a recent report. Municipal obligations are favored by rich investors because they are free from federal tax and, if the investor lives in the State in which the obligation is issued, exempt from state tax. The bonds underperformed this year, lagging behind other fixed income assets in the first quarter and a safe blow after President Donald Trump announced his pricing policy earlier this month. Dan Close, responsible for the municipal elections of Nuveen, has reduced lamentable performance to a number of things that happen on the market, including many supply and people who sell bonds to pay taxes. In addition to that, uncertainty struck investors and there were liquidity problems. However, he thinks that the fundamentals remain quite solid. For those who seek to participate in the data center, it is “the first rounds,” he said. Public power obligations are an avenue to take, he suggested. The installations are currently consuming between 3% and 4% of the power produced in the United States, said Close, and it provides that this will increase to almost 8% by 2030. Public electricity services should increase capital expenses and infrastructure investment at a time when capital expenses are already high, he said. “It will be an increasing part of the municipal bond market over the next five years, over the next 10 years,” said Close. “For investors, it presents a good set of opportunities, just given the stability of public energy suppliers, and especially if we see this program, it presents an opportunity where the levels could become cheaper.” For example, Nuveen has the bonds of the South Carolina Public Service Authority in its municipal bond fund of intermediate duration. NMBAX YTD MOUNTAIN NUVEEN INTERMEDIATE Municipal duration Bond Fund another way of playing the theme is to buy general obligations of the local government where the data centers are located, said Close. Centers can be an attractive option for economic development, but the real impact on the local economy can be difficult to measure, he said. For example, construction can stimulate an explosion of employment, but the centers require few workers thereafter, he said. However, they can also help bringing other workers and taxes to the region, he added. Meanwhile, local governments will see an increase in tax revenue thanks to property and sales withdrawals, noted closed. However, many also provide tax incentives to attract data centers. A local government that took advantage is the county of Loudoun, in Virginia. The county has $ 2 billion in current municipal bonds, on June 30, 2024, according to the report of Nuveen. Its data centers added $ 16 billion to the land tax base of $ 174 billion in the county of Loudoun in 2024, according to the report. The county expects total government's revenues to increase 11% during the year 2026, while reducing the tax on real estate by 7% at the same time, noted the report. However, Close warned that credit selection is essential when investing in public power or general obligations. “In the absence of AI boom and in the absence of construction, we examine the service area and the local economy, the capacity and flexibility of the rates – the local authorities have the capacity to set prices and ensure that they do their debt service – how many capital and relaxation expenses of the debt they have,” said Close. Get your Pro Live ticket join us on the New York Stock Exchange! Uncertain markets? Win an advantage with CNBC Pro Live, an exclusive and inaugural event on the historic New York Stock Exchange. In today's dynamic financial landscape, access to expert information is essential. As a CNBC Pro abnators, we invite you to join us for our first exclusive event and in person CNBC Pro Live to the emblematic NYSE on Thursday, June 12. Join the professional interactive clinics led by our Pros Carter Worth, Dan Niles and Dan Ives, with a special edition of Pro Talks with Tom Lee. You will also have the opportunity to network with CNBC experts, talents and other professional subscribers for an hour of exciting cocktail on the legendary soil. Tickets are limited!
This is a piece of “first sleeves” in tax franchise on the boom of artificial intelligence, says Nuveen
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