Finding utility in global infrastructure

Bottom line up top:

• No surprises for markets banking on a rate cut. The Federal Reserve last week ended months of speculation by cutting the fed funds rate by 25 basis points (bps), to a range of 4.0% to 4.25%. In its policy statement, the Fed acknowledged slowing job gains and a modest uptick in unemployment, while also noting that "downside risks to employment have risen." This cautious tone marked a significant change from the Fed's July policy statement, which deemed labor market conditions "solid." Last week's statement reiterated that inflation also "remains somewhat elevated."

  The dot plot thickens. The Fed's updated dot plot of projected rates now signals 75 bps of cuts in 2025, compared to 50 bps in its June forecast, suggesting a more dovish course (Figure 1). Additionally, the Fed has slightly upgraded its view on 2025 GDP growth (to +1.6%), with expectations for unemployment and core inflation unchanged from prior estimates of 4.5% and 3.1%, respectively.

  Market reaction was mixed amid the Fed headlines. The S&P 500 Index posted gains for the third straight week and sixth of the past seven, closing at a new all-time high. The 2-year U.S. Treasury yield, which is typically sensitive to changes in monetary policy, edged up 2 bps during the week despite the rate cut. Longer-term rates were pressured by inflation concerns and heavy Treasury issuance, with the 10-year yield closing 6 bps higher.

  Looking ahead, markets will be focused on next week's report of the Personal Consumption Expenditures (PCE) Price Index for August. A softer print for core PCE - the Fed's preferred inflation gauge - could reinforce expectations for further rate cuts, while any upside surprises may challenge the Fed's inflation outlook.

  Given heightened economic uncertainty, investors may want to consider diversifying with an allocation to publicly listed global infrastructure. This asset class offers upside potential due to shifting energy dynamics and a track record of resilience during periods of volatility.

Portfolio considerations

Listed global infrastructure is entering a new phase of secular growth as hyperscale data center expansion, driven by the rise of artificial intelligence (AI), creates a generational shift in electricity demand. In addition to this long-term growth opportunity, infrastructure assets offer attractive investment potential in the current environment of less-certain economic forecasts. Infrastructure's resilience derives from its unique role in providing essential services that are less sensitive to diminished demand that more discretionary sectors may face during economic slowdowns. In addition to possible outperformance versus broader equities in periods of muted stock market returns, many infrastructure assets generate income, thereby offering a degree of inflation protection.

One of the most powerful catalysts of equity market appreciation has been the explosive growth of AI. We expect broader adoption to drive up AI spending to $1.3 trillion, or 26% of global IT budgets, by 2029. This growth is being fueled by increased demand for computing power and electricity generation, transmission and distribution.

The AI boom is perhaps best represented by hyperscale capital expenditures. U.S. data center construction alone has surged to a record $40 billion annualized pace in 2025, with the world's largest technology companies collectively expected to invest nearly $400 billion per year in AI infrastructure through 2028. McKinsey projects U.S. data center electricity demand will nearly triple by 2030, adding 460 terrawat hours (TWh) - more than double the growth seen over the past three decades combined. Globally, data centers consumed about 415 TWh in 2024 (1.5% of all electricity use), a figure that could exceed 900 TWh by 2030.

Against this backdrop, utilities look attractively valued relative to the broader stock market (Figure 2). Utilities trade at a forward price-to-earnings (P/E) ratio in the high teens, in line with historical averages, versus the approximately 22X P/E for the S&P 500 as a whole. This is one of the widest valuation discounts for utilities in a decade. Dividend yields add further appeal: Utilities yield around 3.5%, far more than the roughly 1.5% for the S&P 500. With earnings growth poised to accelerate thanks to AI-driven demand, the combination of compelling yields, relative value and structural growth makes utilities a rare defensive sector with cyclical upside.

Nuveen's Global Investment Committee (GIC) brings together the most senior investors from across our platform of core and specialist capabilities, including all public and private markets.

Regular meetings of the GIC lead to published outlooks that offer:

• macro and asset class views that gain consensus among our investors
• insights from thematic "deep dive" discussions by the GIC and guest experts (markets, risk, geopolitics, demographics, etc.)
• guidance on how to turn our insights into action via regular commentary and communications