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Investing.com -- Wolfe Research downgraded data center operator Equinix Inc (NASDAQ:EQIX) to Peer Perform from Outperform given a limited near-term upside following a sharp rally in the stock and stretched valuation compared to peers.
“We think our profit taking in EQIX could prove particularly early if the economy weakens, as the company’s topline growth is far less economically sensitive than in most commercial real estate sectors,” Wolfe analysts wrote, but added that “price discovery on relative growth” now makes further multiple expansion difficult.
Equinix currently trades at 24 times 2025 AFFO (adjusted funds from operations), a 27% premium to Wolfe’s REIT coverage group, compared to a historical average premium of 16%.
Wolfe still expects steady earnings from Equinix, driven by consistent pricing growth in its core retail data center business.
However, growth in Q2 will appear weaker due to the timing of recurring capex and a step-down in non-recurring revenue, which surged late last year and now presents tough comparisons.
Wolfe also flagged modest medium-term earnings pressure from higher debt costs, after the company recently issued €1.5 billion in debt at a higher rate than its expiring notes.
While noting Equinix’s topline is relatively resilient in weaker economic environments, Wolfe said the valuation already reflects that defensive profile.
It also highlighted the company’s upcoming analyst day on June 25 as a potential catalyst, particularly regarding updates on its xScale 2.0 wholesale joint venture.
“Further near term multiple expansion could be challenging,” the analysts said, pointing to both sector dynamics and the broader rally in data center REITs since late 2023.
