Equinix Expands Amid Market Growth, But Valuation and Execution Risks Persist

What happened

Equinix is ramping up global expansion with plans to double data center capacity by 2029, targeting the rapid growth in AI and cloud demand. The data center market is projected to reach over $622 billion by 2030, growing at nearly 11% annually, providing a favorable backdrop for Equinix's strategy. However, the company faces a stretched valuation with a P/E of 77 and EV/EBITDA of 193, indicating limited margin of safety compared to intrinsic value. Critical risks include high leverage at 4.6x Net Debt/EBITDA, power procurement challenges for its 3 GW pipeline, and volatile free cash flow from intense capital expenditures. While recent news suggests legal uncertainties have cleared, execution on expansion and risk management will be pivotal for sustaining growth amid these headwinds.

Implication

Equinix's aggressive expansion aligns with strong secular demand, but high valuation and operational risks require careful monitoring. The company's ability to secure power and deliver on its 58-project pipeline will be crucial to justifying premium pricing and supporting AFFO growth. Persistent leverage at 4.6x Net Debt/EBITDA and capex intensity could strain financials if execution falters or market conditions ease. Investors should focus on watch items like power procurement success, vacancy rates, and AFFO per share trends to gauge upside potential. Until these risks are mitigated, patience is warranted, with any material improvement potentially supporting a BUY, but setbacks could justify a SELL.

Thesis delta

The new article highlights cleared legal uncertainty and expansion momentum, but this does not shift the core investment thesis from the DeepValue report. The thesis remains that Equinix is positioned for growth but is overvalued with significant execution risks, particularly around power procurement and leverage. Investors should continue to monitor key indicators without altering their stance until clearer evidence emerges.