Is it Wise to Retain Equinix Stock in Your Portfolio Right Now?

Equinix EQIX is well-poised to benefit from the robust data center demand. Its recurring revenue model and strategic expansions are encouraging. A solid balance sheet provides financial flexibility. Regular dividend payouts result in shareholder wealth creation.

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However, competition from other data centers, which leads to aggressive pricing policies, is a key concern for Equinix. High interest expenses add to its woes.

Last December, EQIX collaborated with Dell Technologies to help enterprises deploy flexible and scalable AI infrastructure. Its International Business Exchange (IBX) data centers integrate the Dell AI Factory with NVIDIA to deliver a comprehensive suite of products, solutions and services on a neutral, cloud-adjacent platform.

In the past three months, this Zacks Rank #3 (Hold) stock has risen 7.7% against the industry’s 6.6% decline. Analysts seem bullish on this data center REIT with the Zacks Consensus Estimate for its 2025 funds from operations (FFO) per share having moved northward marginally to $38.32 over the past two months.

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The demand for high-performing data centers will escalate in the years to come with the exponential rise in data traffic, which will require enterprises to engage data-center service providers such as Equinix. Therefore, the increasing total addressable market for data centers provides an immense growth opportunity for Equinix. Management expected total revenues to increase 7% in 2024 on a year-over-year basis.

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Equinix is likely to benefit from favorable operating leverage. Its business generates a substantial portion of monthly recurring revenue bookings (greater than 90% of total revenues in the last three years) from existing customers. The company generated 36% of the recurring revenues from its 50 largest customers during the three and nine months ended Sept. 30, 2024. For 2024, we estimate recurring revenues to increase 6.2% on a year-over-year basis.

Equinix continues focusing on acquisitions and developments to expand data center capacity in key markets and strengthen its competitive positioning and global reach. In November 2024, the company announced its plans to establish a new data center in Singapore, with an initial investment of $260 million. As of the end of the third quarter of 2024, it had 57 major builds underway across 35 markets in 22 countries, including 13 xScale builds representing more than 22,000 cabinets of retail capacity and more than 100 megawatts of xScale capacity through the end of 2025.

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