Brookfield’s Connor Teskey on the Real Bottleneck in the AI Buildout

Connor Teskey · Brookfield Asset Management

Market overreacts to AI headlines; underlying data-center demand far exceeds available supply.

Teskey says the market reacts heavily to single announcements, such as a more efficient AI model or a large hyperscaler walking away from data-center leases, and that this seems divorced from what he sees on the ground. Right now demand is exceptionally high and supply is only a small fraction of it. Because supply is so far behind demand, small changes in demand growth would not disturb the imbalance. He acknowledges that these are huge projects requiring a lot of discipline and capital committed for decades.

“A potentially more efficient model comes out or a large hyperscaler walks away from one of its ... data center leases and the whole market reacts. That seems a little divorced from what we're seeing on the ground.”at 3:45

Connor Teskey · Brookfield Asset Management

Scarce input for the AI buildout is execution capability, not capital or demand.

Teskey argues that the commonly cited big dollar figures are not the bottleneck, since there is no shortage of capital or demand. The real constraint is who can pull projects out of the ground: completing land development, securing grid connections, building the power supply, building and operating large-scale facilities, and providing redundancy. Capital is therefore no longer enough. He sees the market shifting toward providers that combine big dollars with big operating capabilities.

“That is not the bottleneck. There is no shortage of capital and there is no shortage of demand. The bottleneck is who can actually pull these projects out of the ground... It is not capital, it is not demand.”at 5:13

Connor Teskey · Brookfield Asset Management

Sovereign governments, not hyperscalers, will anchor AI data-center build-outs outside the US and Asia-Pacific.

Teskey argues the AI build-out in the US is driven organically by large technology companies and hyperscalers, most of which are American and expanding globally. Europe lacks an equivalent concentration of homegrown large-scale tech companies, so its demand comes from a different source. Nation states are stepping in because AI is a productivity tool and they do not want their populations left behind. Governments will backstop AI infrastructure, and Brookfield has signed agreements in France, Sweden and Qatar in which the initial offtaker is a sovereign rather than a hyperscaler.

“We've signed agreements in France, in Sweden, in Qatar, where the initial off taker to support the build out of AI infrastructure is not a hyperscaler, but actually a sovereign. We call that sovereign AI.”at 7:56

Connor Teskey · Brookfield Asset Management

Power supply is structurally short; imbalance would persist even if demand plateaus or declines.

Teskey argues electricity and energy-infrastructure supply is structurally short. Demand is up while supply is only a small fraction of it. The imbalance began in the late 2010s, driven by re-industrialization and electrification, which alone would have provided decades of electricity demand growth. AI then took that imbalance and exaggerated it. Even if demand growth slowed, plateaued or declined, a huge supply-demand imbalance would remain for providers. He sees the theme lasting through the end of this decade and beyond, not just quarters or years, and calls it perhaps the greatest capital need in history with very attractive returns. Electricity has moved from something taken for granted to the single biggest bottleneck to growth for the largest companies and countries.

“Demand is up here and supply is down here. Even if demand growth was to slow, even if it was to plateau, even if it was to decline, there would still be a huge supply demand imbalance to the providers.”at 0:10

Connor Teskey · Brookfield Asset Management

Largest power buyers increasingly consolidate on a few scale providers over many small suppliers.

Teskey argues that because electricity has become such a critical bottleneck, the largest buyers no longer simply choose the lowest-cost supplier. A hyperscaler that cannot get power for a data center on time is badly affected. Rather than dealing with 10,000 small suppliers who may or may not deliver on time or on budget, the largest users are focusing on a smaller number of scale providers with the credibility to deliver. Brookfield illustrates the shift: a decade ago it sold power mainly to utilities and governments, and now it sells most of its power directly to corporates under global framework agreements. He says certainty and delivery are worth far more than a penny on power price.

“we're increasingly seeing the largest users of electricity increasingly focus on a smaller number of scale providers who have the credibility to work through problems, deliver on time, deliver on budget”at 11:46

Connor Teskey · Brookfield Asset Management

Energy storage is the fastest-growing segment of renewables, offsetting intermittency.

Teskey says customers want the benefits of low-cost renewables without the intermittency problem. Storage, using batteries, solves that. He describes energy storage as the fastest-growing segment of Brookfield's energy business, and notes that this was not true five years ago. He presents this as a result of evolving customer needs for power of a particular shape, location, source and duration.

“I'll tell you the fastest growing segment of our energy business right now is energy storage.”at 10:51

Connor Teskey · Brookfield Asset Management

Credit is becoming a core pillar of private markets; buying Oaktree accelerated Brookfield's entry.

Teskey explains why Brookfield bought a majority stake in Oaktree in 2019. Brookfield already had a very large, market-leading equity franchise on the private investment side, but he judged that credit was becoming a core pillar of private markets. Brookfield could have built a credit franchise over 10 to 15 years, but it judged the acquisition worth it to accelerate that process. In hindsight he calls it a great decision.

“we did feel that credit was becoming a core pillar of private markets going forward. Could we have built a market leading credit franchise over ten or fifteen years? Absolutely. We thought it was worth it to accelerate that process.”at 14:27

Connor Teskey · Brookfield Asset Management

Alternatives penetration in individual wealth, at 2% or less, is far below institutions and rising.

Teskey argues the alternatives industry will keep growing significantly. Growth so far has come from institutional allocations rising over the last two decades, and that alone could drive industry growth for the next decade. The individual market is a second growth lever: high-net-worth investors, insurance and annuity holders, and retirement savers. Its penetration is very low, at 2% or less today, against institutional allocations in the mid-teens that could rise to 20% or 30% over time. He sees this as a durable trend rather than a fad. Alternatives offer returns, a liquidity premium, stability relative to increasingly volatile public markets, diversification as leading companies stay private longer, and private capital suited to long-duration infrastructure that produces no cash for years.

“If institutional investors are allocated somewhere in the, call it mid teens range to alternatives and probably going up to 20% or 30% over time, that individual market is 2% or less today. In terms of directional trend line, we don't see it slowing down.”at 28:26