FA Alpha Daily

This company will be one of the main beneficiaries of the upcoming data center capex cycle

Artificial intelligence (AI) is recognized as a transformative technology, and UBS forecasts a surge in data center spending to fuel its growth. This potential boom could benefit Equinix, a leading data center company. In today’s FA Alpha Daily, we explore what makes Equinix (EQIX) a compelling investment opportunity.

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Artificial intelligence (“AI”) is widely considered one of the largest investment opportunities in human history with the potential to reshape our world profoundly. 

In a recent report, UBS made 10 thoughtful predictions on how AI will impact various industries in the coming years.

One of their more notable forecasts was that AI would trigger an unseen surge in data center capital expenditures that would greatly exceed typical spending on general-purpose infrastructure. 

As AI models become more sophisticated, the volumes of data needed to train and deploy these systems will grow exponentially. 

This flood of information will require vast amounts of computing power and data storage located in centralized facilities known as data centers.

No company is better positioned to profit from this data center building boom than Equinix (EQIX), one of the world’s largest providers of internet exchanges and colocation space.

With over 260 data centers spread across major markets on six continents, Equinix has spent decades developing the physical and digital infrastructure needed to support the core networks and cloud platforms that power the global economy.

Through strategic acquisitions and new construction, Equinix has expanded its platform to include over 10,000+ customers and 468,000+ total interconnections, including large hyperscale clouds, digital media sites, and financial services.

Equinix has ~40% of hyperscale cloud on-ramp nodes and serves customers like AWS, Google Cloud, Azure, and Oracle.

The company provides valuable cross-connect services that allow its tenants to exchange internet traffic and integrate cloud services securely. 

This interconnection-rich environment is critical as enterprises shift workloads between on-premise IT and various public clouds.

As AI algorithms require exponentially greater computing resources, technology leaders will turn to partners like Equinix that can seamlessly scale their footprint. 

Demand for high-density colocation space and bandwidth will surge, presenting a massive tailwind for the industry. 

The company’s existing data center footprint globally positions it extremely well to capture new business. 

Management has proven adept at utilizing its global platform and real estate expertise to build in key growth markets strategically.

However, from a price-to-book perspective, the market hasn’t priced the company for the potential upside from these trends.

Equinix currently trades at 3.9x Uniform P/B, around historical averages. This presents an opportunity for investors to invest at a discount before market sentiment improves.

Considering that UBS predicts data center capital spending—driven by AI—will balloon to double-digit annual growth rates, Equinix is poised to benefit enormously as this trend plays out over the coming years. 

The company’s first-mover advantage, best-in-class infrastructure portfolio, and focus on interconnection make it the ideal solution for customers navigating an AI-fueled digital transformation. 

For investors, Equinix provides a compelling way to gain upside exposure to one of the most significant technological megatrends of our time.


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Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research

The Uniform Accounting insights in today’s issue are the same ones that power some of our best stock picks and macro research, which can be found in our FA Alpha Daily newsletters.

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