Shares in data center company and real estate investment trust (REIT) Equinix (NASDAQ: EQIX) were lower by nearly 10% by noon ET today. The decline comes after a slew of Wall Street analysts downgraded the stock the day after its analyst day presentation.
Here’s what the investment community is worried about.
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Analyst downgrades
In truth, the decline is probably a combination of lofty expectations going into the analyst day presentation (not least because data centers and artificial intelligence, or AI, are the hot investment topics this year). The realization that building out the data centers to service demand will be a drag on its adjusted funds from operations (AFFO) per-share growth. For reference, AFFO is the key metric that investors use to evaluate REITs.
At last count, six Wall Street companies (including heavyweights like JPMorgan, BofA, and Wells Fargo) have lowered price targets and recommendations on the stock.
Image source: Getty Images.
What analysts are worried about
What’s spooking them is Equinix’s 2025-2020 guidance for AFFO per-share growth of just 5% to 9%.
It’s a somewhat disappointing figure, given that back in 2023 on its last analyst day, management gave an estimate of long-term AFFO per share growth of 7%-10%.
The 2025-2029 revenue growth guidance of 7%-10% is acceptable, as is the guidance for “underlying AFFO per share” growth of 8% to 11%. However, analysts may be concerned about the 2% reduction in the figure due to the company’s statement of “build bolder investments” — in other words, a ramp in spending to support long-term growth.
What it means to investors
The market might not like it near term, but there’s nothing wrong with investing for long-term growth, and that’s what Equinix is doing here. It will hurt medium-term AFFO, but it’s the right thing to do for long-term investors.
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Wells Fargo is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. JPMorgan Chase is an advertising partner of Motley Fool Money. Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America, Equinix, and JPMorgan Chase. The Motley Fool has a disclosure policy.
