Equinix, Inc. (EQIX): Wall Street Analysts Are Bullish on This Stock Right Now

We recently compiled a list of the 15 Best Data Center Stocks To Buy According to Jefferies, Citi and Wall Street Analysts. In this article, we are going to take a look at where Equinix, Inc. (NASDAQ:EQIX) stands against the other data center stocks.

The boom in the interest surrounding artificial intelligence has not only affected semiconductor stocks, even though they're the biggest beneficiaries. While the chips that these companies make are indispensable for running AI workloads, they have to be housed somewhere, and this is where data centers come into play.

In fact, for the data center space, AI has only accelerated the growing demand this industry is seeing. Prior to AI GPUs and accelerators, enterprise computing chips made by the same companies that are now making AI chips were seeing hefty demand. This demand led to gaming GPU companies effectively being transformed into enterprise computing firms, with sectors such as the SaaS and cloud computing industries relying on these products. For some SaaS stocks, you should check out 10 Best SaaS Stocks To Buy Now.

This pre AI demand for data centers is visible in statistics too. Data from Jefferies shows that the demand growth for data centers has jumped by between 10% to 20% for the last 15 years, or before AI GPUs hit the market. As expected, AI has accelerated this demand, with the demand for data center space outpacing 30% in most markets for the past two years. This growth in real estate requirements also means that while the computing industry might be able to scale up by providing products like networking gear and cables, tertiary industries like energy generation will take some time to catch up.

If you're a believer in AI, then the optimistic line of thought would suggest that these tertiary firms will only grow in the future as they scale up their operations to meet the growth in AI data centers. After all, data from Goldman shows that a query made to ChatGPT consumes ten times as much energy as a Google search query - understandable since ChatGPT is parsing through data and drawing insights to generate a response. By 2030, AI is expected to grow data center power demand by as much as 160%, as data centers potentially account for 4% of global energy consumption and Europe in particular needs more than $1 trillion to power its AI grid.

Naturally, since the US is responsible for ushering in AI, AI energy consumption in America is higher than that in other countries. According to the Boston Consulting Group, by 2030, AI power consumption will account for 16% of all of America's energy use. It is expected to grow by 15% to 20% annually and touch as much as 130 GW, or the amount of electricity that's used by 100 million homes. AI chip companies are also aware of these trends, with the latest AI chips promising to improve energy efficiency by 25x. Improving AI performance at the semiconductor level is important especially since some areas where data centers are growing are being forced to turn to coal power to reduce the power gap.

Nowhere is this clearer than in Northern Virginia, where data centers process 70% of the world's internet traffic. With more than 300 data centers that churn out more than $700 million in taxes annually, the region's computing centers are expected to require a whopping 11,000 megawatts of electricity annually by 2035 according to estimates by the local regulator. This demand has also spurred a $5.2 billion effort to lay down new transmission lines and keep coal power plants open for longer than initially planned.

Not only does AI need real estate and power, but it also needs water. Since energy can neither be created nor destroyed, all the megawatts of power that AI chips need have to go somewhere. For the chips, it is dissipated in the form of heat, and cooling this requires copious amounts of water. Estimates show that not only does training GPT-3 evaporate a whopping 700,000 liters of drinkable water, but global AI demand by 2027 could end up using anywhere between 4.2 billion to 6.6 billion cubic meters of water.

Coming back to real estate, it might be the easiest way for the AI savvy investor to cash in on the world's thirst for computing. Citi believes that the "development and construction of hyper-scale data center capacity will grow meaningfully over the next 7 years," as global industrial giants expand into the data center space. Not only are industrial firms actually converting their warehouses into data centers, but Citi adds that the associated power demand for these computing facilities will grow between the mid teens annually until 2030.

So, as these Wall Street firms lay out a maze of industries that will profit from AI, we decided to look at the top data center stocks to buy according to analysts.

Our Methodology

To make our list of the top data center stocks to buy, we ranked the US listed holdings of Global X's data center ETF and the stocks chosen by Jefferies and Citi by the average analyst share price target percentage upside and picked out the stocks with the highest upside.

For these stocks, we also mentioned the number of hedge funds that had bought the shares in Q1 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

A team of IT professionals working on a digital platform, indicating the company's agile digital services.

Equinix, Inc. (NASDAQ:EQIX)

Average Analyst Share Price Target Upside: 18%

Average Analyst Share Price Target: $905.73

Number of Hedge Fund Investors  in Q1 2024: 66

Equinix, Inc. (NASDAQ:EQIX) is a data center collocation and hosting company which means that it provides businesses with the real estate to host their servers. It is one of the few stocks on our list that's on both Citi and Jefferies' lists. Citi believes that the firm not only offers a "valuable hub" for cloud and generative AI products. Additionally, Equinix, Inc. (NASDAQ:EQIX) offers a "fully managed service for Nvidia AI." Jefferies had set a $910.86 share price target for Equinix, Inc. (NASDAQ:EQIX)  in late June 2024, which provides a hefty upside over the current share price of $778.79. One key advantage that Equinix, Inc. (NASDAQ:EQIX)  enjoys over its rivals is that the firm has been in business since 1998. This provides it with a key advantage when it comes to customer relationships, which are key in today's environment when spending might drop due to an economic downturn. This means that while Equinix, Inc. (NASDAQ:EQIX)'s revenue will slow in case businesses cut back spending, it will pick up again when the economic clouds improve.

Equinix, Inc. (NASDAQ:EQIX)'s management commented on its robust momentum and industry presence during the Q1 2024 earnings call where it shared:

"We had a great start to 2024 driven by our highest Q1 bookings performance on record, strong conversion rates, completely favorable pricing dynamics, and lower-than-expected churn, all resulting in our 85th key quarter of top-line revenue growth, the longest such streak of any S&P 500 company. We closed more than 3,800 deals across more than 3,100 customers for the quarter demonstrating both the scale and the consistency of our go-to-market machine. And we again saw accelerating hyperscale demand translate into robust xScale leasing in both EMEA and Asia. While we continue to operate in an environment of broader economic uncertainty, and see some level of corresponding customer caution, our forward-looking pipeline is strong, and we remain optimistic about the opportunity ahead."

Overall EQIX ranks 15th on our list of the best data center stocks to buy. While we acknowledge the potential of EQIX as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than EQIX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.