(Bloomberg) — Brief vendor Hindenburg Analysis focused information heart proprietor Equinix on Wednesday (March 20), alleging that the corporate manipulates its accounting and is promoting an “AI pipe dream.”
Hindenburg’s disclosure of a brief place and its allegations elevate questions in regards to the future for Equinix, which has been benefiting from the expectation that synthetic intelligence corporations will want much more information facilities to energy the know-how. Equinix shares have been pummeled Wednesday and the corporate pulled a beforehand deliberate bond providing after the report hit.
Equinix dropped 2% to $827.35 at 3:28 p.m. in New York. The corporate’s bonds additionally weakened Wednesday, with its 3.9% bonds maturing in 2032 buying and selling 20 foundation factors wider at 123 foundation factors greater than Treasuries round 3 p.m. in New York, based on Hint information.
“We’re conscious of the report and within the technique of reviewing claims made therein,” an Equinix spokesperson mentioned in an emailed assertion. “We take these issues critically, and we won’t reply additional to the claims throughout our evaluate. We’ll report again as soon as that evaluate is full, as applicable.”
Hindenburg alleges that the almost $80 billion actual property funding belief is manipulating its accounting for a key profitability metric – adjusted funds from operations – and overstated that determine by a minimum of 22% in 2023. The quick vendor additionally mentioned Equinix trades at elevated ranges even when financials are taken “at face worth.”
Equinix has decided to not proceed “right now” with its deliberate providing of nine-year euro bonds, based on an individual acquainted with the matter, who requested to not be recognized as a result of they’re not approved to discuss it. Demand was sturdy for the providing earlier than it was pulled, with the corporate transferring pricing tighter.
Whereas it’s common to tug a bond providing when large information breaks, the accusations within the report might make it harder for Equinix to entry capital if the corporate can’t adequately push again on the allegations, based on Bloomberg Intelligence analyst Jeffrey Langbaum.
Earlier this month, Equinix mentioned Adaire Fox-Martin, who used to work at Google, will develop into its new president and chief govt officer within the late second quarter, with present CEO Charles Meyers transferring to an govt chairman position. The corporate has been increasing its information heart footprint, opening buildings in cities together with Dublin and Frankfurt. In 2023, its income rose 13% from a 12 months earlier, and its AFFO was up 11%.
Jeffrey Langbaum, a senior business analyst at Bloomberg Intelligence, mentioned: “A report by Hindenburg detailing its quick place on Equinix – primarily based totally on accounting practices that allegedly inflated profitability – paints an particularly ugly image when paired with the REIT’s administration modifications introduced final week.”
The info heart proprietor has mentioned that accelerating progress in synthetic intelligence helps to drive demand for its properties. However Hindenburg argues that the AI increase poses a threat to Equinix’s outlook, as AI progress will doubtlessly double energy calls for at Equinix’s properties and require many facilities to be upgraded. And it’s accounting strategies have given the market the impression that Equinix is a “cost-leading outlier” available in the market, Hindenburg alleged.
“This misunderstanding, mixed with normal market euphoria for AI, has resulted in traders rewarding Equinix as if it’s a key AI beneficiary, when the alternative appears true: AI poses a threat to Equinix’s already power-constrained amenities,” the quick vendor mentioned.
Equinix mentioned it’s assured within the firm’s means to create long-term alternatives via its “distinctive benefits.”
The agency additionally continues “to see Equinix as extremely related to clients as they pursue their digital transformation agendas and deploy distributed, hybrid and multi-cloud infrastructure as the popular structure of selection,” the spokesperson mentioned.
