Data center developers positioned to show advantages; Morgan Stanley upgrades Brookfield Infrastructure (BIP.US) rating to "hold"

On Monday, Morgan Stanley upgraded Brookfield Infrastructure (BIP.US) from "Hold" to "Buy" with a target price of $45, citing the company's strong growth momentum as a leading data center developer. At the same time, the firm maintained a "Buy" rating on Brookfield Renewable Partners (BEP.US) and raised its target price from $38 to $42. Morgan Stanley analyst Robert Kad pointed out that Brookfield Infrastructure is a leading data center developer in Europe and America with significant competitive advantages. Leveraging its parent company Brookfield's comprehensive layout and development capabilities in artificial intelligence (AI) infrastructure, the company can meet the computing power infrastructure needs of sovereign entities and large cloud service providers. Kad stated that in addition to investing approximately $500 million annually in AI infrastructure and the potential for higher-than-expected returns, factors such as the expected large-scale investment cycle in various business segments, stable interest rates, and a weakening US dollar will all benefit Brookfield Infrastructure. He predicted that from 2026 to 2028, the compound annual growth rate of Brookfield Infrastructure's Funds from Operations (FFO) per unit will increase from 7.1% in 2023-2025 to 12.5%. Regarding dividends, Kad expects Brookfield Infrastructure to achieve 5% annual dividend growth in the future and believes that the growth in operating cash flow can support a dividend increase to the high end of the target range of 5% to 9%. Furthermore, Kad believes that the price difference between Brookfield Infrastructure and Brookfield Renewable Partners, as well as their respective tracking stocks (special stocks attached to parent company operations and independently traded), BIPC and BEPC, is expected to narrow. Based on this assessment, he downgraded the ratings of the latter two to "Underweight" with target prices of $45 and $48 respectively.