Equinix's AI Growth Tempered by Valuation and Leverage Concerns

What happened

Equinix reported strong Q3 2025 results with 5.2% revenue growth and 8.6% AFFO per share growth, driven by robust demand for AI data center infrastructure. The company's interconnection-led platform and plans to double capacity by 2029 position it well in a tight market with low vacancy and high preleasing. However, valuation remains stretched with a P/E around 77 and EV/EBITDA near 193, well above intrinsic value estimates and historical averages. The Seeking Alpha article touts a forward P/AFFO of 18.6 as undervalued, but this ignores high leverage at Net Debt/EBITDA of 4.6x and volatile free cash flow. Key execution risks include power procurement for expansion and capex intensity, which could hinder dividend growth and capital returns.

Implication

Equinix's operational strength and capacity expansion support long-term growth, but high valuation multiples offer limited margin of safety. The dividend yield and growth are appealing, but coverage depends on managing capex and volatile cash flows. Power procurement challenges could delay expansion and increase costs, impacting profitability. Monitoring leverage trends and consistent AFFO beats is crucial before considering a more bullish position. Until risks are mitigated, holding or waiting for a better entry point is prudent to balance growth prospects with financial stability.

Thesis delta

The article's bullish narrative, based on low P/AFFO and dividend growth, contrasts with the DeepValue report's caution on overall stretched valuation and high leverage. This reinforces the HOLD thesis, emphasizing that while AI demand is a tailwind, risk-reward remains unfavorable without improvements in capital efficiency and debt management.