EQIX: Recent Data Center Expansion Will Drive AI Infrastructure Demand

Key Takeaways

• Strategic data center expansion and strong customer demand in AI and cloud drive long-term growth and recurring revenue streams.
  
• High-margin interconnection services and disciplined capital management support margin expansion and improved earnings per share.
  
• Heavy reliance on large-scale capital investment and a concentrated customer base increases exposure to market, execution, and competitive risks that could undermine long-term profitability.

Catalysts

Equinix (Nasdaq: EQIX) is the world's digital infrastructure company.

• Equinix's aggressive capital allocation toward global data center and interconnection capacity-anchored in large, high-demand metros and emerging markets-positions the company to capture accelerating enterprise AI, cloud adoption, and digital transformation demand, driving robust long-term revenue growth.
  
• Strong, broad-based customer bookings momentum, including increasing deployment sizes and higher-density workloads (especially in AI and hybrid/multi-cloud), points to rising occupancy, higher pricing power, and durable recurring revenue streams.
  
• The rapid expansion and customer adoption of Equinix Fabric and interconnection services (with 8% Y/Y growth, over 4,000 customers, and record interconnection revenue) create new high-margin, asset-light revenue lines, supporting expansion of overall net margins.
  
• Accelerated build-to-stabilization timelines enabled by pre-leasing, single-phase construction, and demand-pull from hyperscalers and enterprises enhance operating leverage, speed up revenue conversion, and should drive higher future earnings growth.
  
• Strategic execution in accessing lower-cost capital markets, prudent interest expense management, and a discipline in CapEx deployment underpins long-term AFFO/share growth targets, supporting both balance sheet strength and earnings per share improvement despite the intensive growth cycle.

Equinix Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Equinix's revenue will grow by 8.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.1% today to 15.3% in 3 years time.
• Analysts expect earnings to reach $1.7 billion (and earnings per share of $17.42) by about September 2028, up from $994.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.6 billion in earnings, and the most bearish expecting $1.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 69.0x on those 2028 earnings, down from 76.7x today. This future PE is greater than the current PE for the US Specialized REITs industry at 30.5x.
• Analysts expect the number of shares outstanding to grow by 1.43% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.33%, as per the Simply Wall St company report.

Equinix Future Earnings Per Share Growth

Risks

• Equinix's long-term growth strategy relies on sustained, large-scale capital expenditures and incremental increases in leverage (targeting up to 4.5x net leverage), which exposes the company to interest rate risk and higher debt servicing costs if rates remain elevated or capital markets tighten-potentially constraining free cash flow and AFFO per share growth.
  
• The company's significant investment in expanding capacity and building new data center assets is dependent on consistent and growing customer demand driven by AI, cloud, and interconnection workloads; should technological shifts favor more power-efficient, on-premises, or edge solutions, demand for centralized, hyperscale colocation could structurally weaken, impacting future revenue and utilization rates.
  
• Ongoing supply chain constraints, access to energy, and timing of large project deliveries introduce execution risk to the "Build Bolder" plan-delays or cost overruns in constructing or leasing up new sites could compress margins and weigh on net profitability during the multi-year investment cycle.
  
• The business model's dependence on a small set of hyperscale and large cloud customers (particularly in xScale) introduces concentration risk; if these customers internalize infrastructure, negotiate aggressive pricing, or face their own growth slowdowns, it could negatively affect Equinix's recurring revenue stability and margin profile.
  
• Despite a robust pipeline, the data center industry remains exposed to potential commoditization and rising competitive intensity (especially in emerging and non-Tier 1 metros), which may erode pricing power and pressure stabilized asset yields, resulting in slower revenue growth and lower long-term net margins.

Valuation

• The analysts have a consensus price target of $957.0 for Equinix based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $1200.0, and the most bearish reporting a price target of just $804.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $11.4 billion, earnings will come to $1.7 billion, and it would be trading on a PE ratio of 69.0x, assuming you use a discount rate of 7.3%.
• Given the current share price of $779.54, the analyst price target of $957.0 is 18.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.