The artificial intelligence revolution isn't just boosting the stocks of chip leaders Nvidia and Microsoft.
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Biggest supporter of OpenAI. Shares of Equinix
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which owns data centers, rose more than 10 percent after the company reported better-than-expected results.
Equinix and other data center companies are benefiting from AI because they have facilities that host large amounts of servers and other infrastructure needed to power AI technology. Earnings from operations and funds, a measure of cash flow for real estate companies, surprised Wall Street.
“The rapidly evolving AI landscape is acting as a catalyst for economic expansion, creating enormous opportunities for Equinix as our customers look to the long-term,” said Charles Meyers, president and CEO of Equinix. Recognize the importance of digital initiatives in driving revenue growth and operational efficiency.” Release of income. The news came after the final bell on Wednesday.
Equinix is also benefiting from the fact that the company said its independent audit committee completed an accounting review and “concluded that Equinix's financial reporting has been accurate, and that its accounting practices The application of has resulted in an adequate representation of its operating performance.
Now the question is, has the good news for Equinix already factored into the stock? While the stock now trades at more than 65 times this year's expected earnings per share, it lags the market. Even after Thursday's gain, shares were down about 4 percent in 2024, largely due to accounting concerns raised in a March report by short seller Hindenburg Research.
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Analysts at BofA Global Research said in a report late Wednesday that accounting issues have weighed heavily on the company and “that fear has been reflected in weak relative stock performance recently.” “The board's independent review redefines the table,” BofA analysts added.
That could mean stocks should continue to rally thanks to strong results. As expensive as Equinix is, rival Digital Realty is even more valuable, with a P/E of more than 90.
Despite these premium prices, many analysts are still bullish on strong demand for AI services. Citi analysts said in a report this week that they expect AI-related computing to “comprise more than half of data center workloads by 2030.” He wrote that the growth potential is “underappreciated in data center share prices”.
Citi analysts rate both Equinix and Digital Realty.
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At Buy, with price targets that imply a 25% upside in stock prices.
But there are cheaper alternatives. American Tower owns wireless infrastructure
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which bought Equinix competitor CoreSite in late 2021, trades for just 25 times this year's revenue estimates.
And while many analysts are likely buying data center companies because of their growth potential over their revenue-generating potential, it's worth noting that all three are real estate investment trusts. This means they pay huge dividends.
Equinix yields about 2.5%, while Digital Realty and American Tower
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Offer a yield of around 3.5%.
Write to Paul R. LaMonica at paul.lamonica@barrons.com.