By CorpGov Editorial Staff
The data center industry continues to experience phenomenal growth as the digitalization of the economy accelerates exponentially across sectors. Against this backdrop, infrastructure investment firm Argo Infrastructure Partners LP (“Argo”) has made a series of notable investments to become the majority owner of TierPoint, a leading U.S. data center operator and provider of enterprise-class data center solutions.
We sat down with Jason Zibarras, founder of Argo Infrastructure Partners and Brice Soucy, Argo Senior Director and TierPoint Board Member, to explore why TierPoint stands out as an attractive target in this dynamic market and as a platform for future investment growth. We’ll examine Argo’s investment thesis and capabilities, assess TierPoint’s competitive positioning and potential for durable long-term growth, discuss additional investment to capitalize on the macro trends propelling demand for data center services and evaluate why TierPoint is a match for Argo’s investment philosophy.
CorpGov: For those not familiar with Argo, would you please explain your investment philosophy?
Jason Zibarras: Argo was founded as an independent infrastructure private equity manager to invest in high-quality infrastructure assets with contracted, regulated or concessioned features. Argo has invested in 5 utility companies with over 600,000 customers, over ~3 GW of power generation and transmission resources, an energy storage network, 40 data centers and over 4,000 managed parking and motorway services facilities. Argo’s 18 portfolio companies have over 15,000 operating employees and operations in 42 states.
Our national presence, the scale of our portfolio and our understanding of the nexus between power markets and data centers, including the criticality of power availability the industry is facing today, positioned us well to underwrite the TierPoint investment and growth. TierPoint’s robust contractual revenue profile, $1.6bn of investment-grade debt profile and environmental stewardship, fully align with Argo’s long-term sustainable infrastructure thesis.
CorpGov: For those not familiar with TierPoint, would you please explain what the company does?
Brice Soucy: TierPoint, founded in 2010, is an enterprise-class data center operator with 40 data centers in 20 markets, connected by a coast-to-coast fiber network providing services to over 3,000 customers.
TierPoint offers a full range of solutions for enterprise customers, including mission-critical enterprise and high-density colocation, network, interconnection, cloud and managed services.
CorpGov: Let’s talk more about the data center industry. There has been considerable media coverage about their increasing importance in the digital economy. What are some of the factors driving growth?
Jason Zibarras: Almost all things digital rely on data centers. Several macro trends are driving demand for data center services by enterprises, including the rapid adoption of cloud computing, continued migration of enterprise workloads to off-premises data centers, emergence of compute-intensive workloads including artificial intelligence (AI) and increasing demand by content providers (including in edge markets). We see these trends materially contributing to growth for enterprise-class data centers by enabling enterprise clients to provide, store and traverse critical data in the medium term. Most pressing today, the AI gold rush is overtaking available processing power, further driving the need for more data centers. NVIDIA (NASDAQ: NVDA) is the most prominent example of the incredible demand for processing power to enable AI; TierPoint’s data centers are providing the picks-and-shovels as a conduit to enable AI workloads via high-density colocation.
Perhaps the most recent example of this is the onboarding of CoreWeave as a customer, a specialized cloud provider built for large-scale, GPU-accelerated workloads who has worked closely with NVIDIA. In total, according to an April report from Thunder Said Energy (TSE), the internet will be the fastest-growing segment of the energy industry due to the acceleration of AI, and electricity demand will be up ~5X p.a. through 2030 (2.4% p.a. vs 0.5% in the past 20 years) in part due to the growth in demand for data centers. According to TSE, “combining the requirement to power data centers with broader ambitions in the energy transition would culminate in the most active expansion of the US power generation infrastructure that has ever occurred.” We expect this to translate into opportunities for TierPoint and our other portfolio companies, including our utility and power generation assets, through the 2030 timeframe.
CorpGov: What are TierPoint’s competitive advantages and how is TierPoint positioning itself to capitalize on the growing demand for AI-related infrastructure?
Brice Soucy: TierPoint has one of the largest customer sets in the industry, and historically over 50% of our growth has been fueled by increased demand from existing customers. Having a national portfolio is crucial to meet increasing demand; more than half of our customers deploy workloads in multiple TierPoint data centers, which will become increasingly relevant as workloads move to the edge and closer to the customer. This is an area where we expect robust growth given the increase in peering traffic within TierPoint’s target markets and the need for high-compute workloads with low latency and close proximity to the customer, including enabling the movement of content and being a conduit between the end user and the content supplier.
TierPoint has one of the best track records for both energy-efficient and reliable operations in the industry. For example, TierPoint achieved 100% uptime of critical systems in 2023, and TierPoint’s data centers exceed industry standards for information security.
TierPoint continues to adjust to technological changes and advances by automating and augmenting its product set. We believe TierPoint is on the cutting edge with its offerings and will continue to focus on this as the company grows to ensure they are able to meet the growing needs of its customer base. As an example, TierPoint enables its clients’ compliant solutions. We have large healthcare practices for which we preserve and assist with critical data from hospitals, healthcare providers and other sources. We also provide similar services for our government and financial services clients, who have comparable regulatory and security requirements for their data.
Since the emergence of high-performance computing and artificial intelligence / machine learning workloads, TierPoint has developed a proven and unparalleled track record for providing high-density colocation to support the most demanding workloads in its target markets. TierPoint has become a trusted partner of choice through its use of modern efficient cooling technologies and efficient rack design. They are able to lower operating temperatures and boost system performance, resulting in both capital and operating expense savings for customers, while helping customers prioritize sustainability by enabling heightened energy efficiency.
CorpGov: The press release announcing Argo’s majority investment in TierPoint stated that this is Argo’s “flagship digital investment.” Jason, would you provide some insight into your investment process and why you have such strong conviction making this investment?
Jason Zibarras: When I left J.P. Morgan, I founded Argo Infrastructure Partners with a specific investment philosophy in mind; one of the keys to that is investing in fundamentally strong, high-quality businesses providing critical/essential infrastructure with high growth potential underpinned by robust contractual frameworks. TierPoint is the exact type of investment we look for – a high-quality, essential infrastructure asset with incredibly strong macro tailwinds driving demand and a national presence able to capture them.
CorpGov: What specific AI applications or workloads are driving the need for high-density colocation services?
Brice Soucy: As TierPoint has stated on its blog, AI workloads can be used to train, execute and maintain artificial intelligence models. Different types of workloads are used to accomplish different tasks. AI models can be trained using historical data to analyze customer behavior, maintenance needs, and sales trends. Predictive analytics and forecasting require a tremendous amount of computing power.
In simple terms, as referenced by TSE, the growth in demand will be driven by both AI training (which requires training energy to process historical data) and then AI querying (which is the use of the models, analogous to sending an email or conducting a Google search). AI querying will drive the majority of long-term growth and according to TSE is expected to increase to ~350bn queries per day by 2045, comparable to today’s daily email traffic, especially as compute-intensity increases over time.
CorpGov: What is your expectation of the growth in the total addressable market (TAM) in the near and longer-term?
Brice Soucy: Data center capacity, the power available to the IT systems it supports, can’t be calculated with just one measurement. Multiple figures are combined to determine capacity, including space, power, cooling, computing resources and network connectivity.
According to a McKinsey & Co. report, data center demand is forecasted to grow approximately 10% each year through 2030, reaching 35 gigawatts (GW) by 2030, a 77% increase from 2024.
CorpGov: Can you elaborate on TierPoint’s achievements in energy efficiency, including how it’s addressing concerns about energy consumption and environmental impact?
Jason Zibarras: TierPoint has an unparalleled industry track record for reliable operations and energy efficiency, having achieved 100% uptime of critical systems and its lowest Power Usage Effectiveness (PUE) in history in 2023. New build expansions can achieve even lower PUEs, 15-20% below the current portfolio PUE, by utilizing state-of-the-art design incorporating modern efficient cooling technologies and efficient rack design. TierPoint has also worked with customers to source local renewable energy capacity wherever possible.
CorpGov: What challenges and opportunities do you foresee in the digital infrastructure landscape?
Brice Soucy: Power availability represents the true nexus of infrastructure and data centers. According to the April report from TSE, there will be a need for 20 GW p.a. of new AI data centers through 2030 (150 GW total, including the demand for both AI training and querying), and Goldman Sachs research from April estimates this will translate into a $50 billion investment requirement over the same timeframe. What we foresee as an even greater challenge that is not being widely discussed in all the headlines about availability is power reliability. As TSE notes, “AI data centers will look for reliable, around the clock power, to minimize the chance of volatility impacting their utilization rates.” As infrastructure investors, we recognize what will be required to source, generate and transmit this reliable power going forward at the lowest levelized total cost of electricity. This will include investment in infrastructure supporting the energy transition to drive energy efficiency and potentially long-duration energy storage solutions that will provide additional reliability over time.
CorpGov: How is Argo planning to help TierPoint expand its data center footprint?
Jason Zibarras: Over half of TierPoint’s historical growth has come from existing customers, so we expect that a significant amount of future investment opportunity will come from expanding existing facilities to meet the needs of our current customer base. Additionally, we are finding unprecedented demand in TierPoint’s markets for colocation as the broader market is forecast to grow at 10% p.a. through 2030. We believe it would not be an overstatement to double the size of the portfolio in the medium term to meet this demand through contracted expansions. We look forward to partnering with the Company, our managed investors and securitization investor partners to fund this expansion over the medium term.
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