Jevons meets Sputnik: The interdependence of the new and old economy

The entry of the latest AI disruptor compels us to reflect on historical junctures that have precipitated significant booms in infrastructure investment. Yet, as AI and digitisation continue to advance, the US grapples with significant power grid challenges stemming from chronic underinvestment in its aging infrastructure. Find out how this ‘Sputnik moment’ and Jevons paradox are meeting to reveal the interdependence between the new and old economy.

DeepSeek has been heralded as a ‘Sputnik moment’, an innovation inflection that often catalyses sustained periods of capital expenditure and infrastructure investment. The original launch of Sputnik 1, the first artificial Earth satellite, in 1957, prompted a frenzied response from the US to match Russian space technology advancements. Similarly, China’s substantial investment wave in the early 2000s led to significant policy responses, such as Joe Biden’s Inflation Reduction and CHIPs Acts. Today, we are witnessing mega-themes like deglobalisation, energy security, electrification, decarbonisation and the rapid advancement of digitisation and artificial intelligence (AI), all of which are propelling the next wave of major infrastructure capital expenditures.

However, the challenge we face today is stark: How have we reached a point where we struggle to keep the lights on due to poor infrastructure investment, while also benefitting from unprecedented AI capabilities? This juxtaposition highlights a critical issue – it’s not just climate change and natural disasters causing power outages, the system itself is simply buckling under the strain.

Source: US Department of Climate Energy Central

So, who will fund the necessary grid upgrades and infrastructure investments? Big tech companies are increasingly taking matters into their own hands, forming joint ventures with infrastructure partners and power companies to secure access to facilities¹ and clean energy² . This trend emphasises the crucial role of reliable power for leading technology companies, often referred to as the Magnificent Seven (Mag 7). Put another way, what is the Mag 7 worth without assured access to reliable power?

Jevons paradox: The interdependence between the new and old economy

So, the new economy characterised by cutting-edge technology companies needs the old economy’s power grids, transportation networks and manufacturing facilities to thrive. Despite this interdependence, investors are predominantly channelling their funds into the new economy, often overlooking the critical investments needed in the old economy to sustain this growth.

Source: Bloomberg, 31 March 2024

Capital naturally flows from areas of abundance to areas of scarcity. New economy companies, such as Microsoft, Alphabet (Google’s parent company) and Amazon, have access to relatively cheap capital, enabling them to drive innovation and expansion. However, to ensure their continued growth and operational efficiency, these companies are compelled to invest in the old economy, particularly in sectors that have experienced significant capital flight, such as energy infrastructure and data centres.

The paradox here is striking: while the new economy thrives on technological advancements and efficiency gains, it cannot function without the robust support of the old economy’s infrastructure. Reliable power and state-of-the-art data centres are indispensable for the seamless operation of these tech giants. 

This phenomenon is captured in Jevons Paradox, which suggests that technological advancements enhancing energy efficiency paradoxically lead to an overall increase in energy consumption. In this case, advancements in data centre efficiency and AI technologies lower the cost per unit of computing power, thereby incentivising greater usage and escalating total energy demand. Consequently, substantial investment in energy infrastructure becomes imperative to accommodate the increased load.

The question then arises: if leading technology companies recognise the necessity of investing in power and data centres, why shouldn’t investors follow suit?

Global listed infrastructure, which offers exposure to the multi-decade themes, requires trillions of investment dollars to drive economic growth and prosperity. Much like Sputnik catalysed a transformative era of capital expenditure and infrastructure investment, the Jevons paradox indicates that increased efficiency can paradoxically drive higher overall consumption, thus necessitating substantial further investment in foundational infrastructure. 

By recognising the cyclical nature of infrastructure investment and the symbiotic relationship between technological advancements and foundational infrastructure, investors can position themselves to capitalise on the opportunities presented by this evolving landscape.

¹ Amber Jackson, ‘Meta Plans Record $65bn AI Investment and 2GW Data Centre’, conomy’, (technologymagazine.com), January 2025.
² Cosmo Sanderson, ‘Google to spark $20bn green power spree in AI data centre 'rethink' pact’, (rechargenews.com), December 2024.

The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested. Past performance is not a guide to future performance. The views expressed in this document should not be taken as a recommendation, advice or forecast. The information provided should not be considered a recommendation to purchase or sell any particular security.