According to Nuveen, income investors looking for a way to play the boom with artificial intelligence can turn to local government bonds connected to data centers. There is a large need for data centers to provide AI infrastructure, and there has since been an increasing demand to strengthen them. Power consumption by data centers is expected to account for almost half of the demand for electricity growth from now until 2030. Public power bonds issued totaled $26.8 billion in 2024, up from an average annual average of $14 billion over the past decade, Nuveen said. Municipal bonds are preferred by wealthy investors because they do not have federal taxes, and if the investor lives in the state where the bond is issued, they are also exempt from state taxes. The bonds delayed other fixed income assets this year in the first quarter, and were hit after President Donald Trump announced his sweeping tariff policies earlier this month. Nuveen’s municipal head Dan Close has choked a disastrous performance on many things happening in the market, including people who sell a lot of supplies and bonds and pay taxes. Additionally, uncertainty has collided with investors, resulting in liquidity issues. However, he believes the fundamentals will remain fairly solid. For those who want to take part in data center play, it’s “early innings,” he said. Public power bonds are the paths to take, he suggested. The facility currently consumes 3% to 4% of the electricity produced in the US, and is expected to increase to almost 8% by 2030. “In the next five years, and the next 10 years, we’ll see growth in the city’s bond market,” Close said. “For investors, given the stability of public power providers, we present a good opportunity set. In particular, when we see this issue being issued, we present an opportunity to get cheaper levels.” For example, Nuveen holds bonds from the South Carolina Department of Public Services in the Intermediate-Term Municipal Bond Fund. Another way to play NMBAX YTD Mountain Nuveen Interim Period Municipal Bond Fund data is to purchase general obligation debts from the local government where the data center is located. While the centre can be an attractive option for economic development, the actual impact on the local economy can be difficult to measure. Construction, for example, could spur employment explosions, but he said the centre has fewer workers on the ground since then. But they can also help bring taxes with other workers into the area, he added. Meanwhile, local governments have intimately stated that they expect tax revenue to increase through the collection of property and sales. However, many also offer tax incentives to attract data centers. One of the municipalities that benefited was Loudoun County, Virginia. Nuveen reports that as of June 30, 2024, the county has $2 billion of outstanding municipal bonds. The data center added $16 billion to Loudoun County’s $174 billion property tax base in 2024, the report said. The county expects government gross revenue to rise by 11% in fiscal year 2026, while simultaneously lowering real estate taxes by 7%, the report said. Still, Close warned that credit choice is important when investing in either public authority or general obligation liability. “With the AI boom not in the absence of construction, we are considering the capacity and flexibility of service areas and local economies, rate setting capabilities and flexibility. Do local governments have the ability to set rates and make sure they are creating debt services? Get tickets for Pro Live Join the New York Stock Exchange! Uncertain markets? Earn edge at CNBC Pro Live, the exclusive first event on the historic New York Stock Exchange. In today’s dynamic financial situation, access to expert insights is paramount. As a CNBC Pro subscriber, the first exclusive and direct CNBC held at the iconic NYSE on Thursday, June 12th. We recommend attending the Pro Live Event. You will also get the opportunity to network with CNBC experts, talent and other pro subscribers during exciting cocktail hours on the legendary trading floor. Tickets are limited!
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