Hindenburg Research accuses Equinix of presenting shareholders with an ‘AI pipe dream’

Hindenburg Research, renowned for its critical evaluations of various companies, has turned its attention to Equinix, an $80 billion data center provider, alleging that the company has presented shareholders with an “AI pipe dream” while purportedly manipulating key metrics to inflate profitability.

The short-seller has disclosed its negative stance on Equinix, indicating a pessimistic outlook on the future performance of the real estate investment trust (REIT).

Equinix’s stocks experienced a significant decline, dropping nearly 5 percent in afternoon trading following Hindenburg’s claims.

The crux of the accusation revolves around Equinix’s alleged misrepresentation of its profitability metric, known as adjusted funds from operations (AFFO).

According to Hindenburg, Equinix has been employing an accounting tactic by misclassifying capital expenditure intended for ongoing operations as expansion expenditure. This tactic purportedly enhances Equinix’s financial position, making it appear more lucrative than it actually is.

Hindenburg estimates that this manipulation has artificially inflated Equinix’s AFFO by a substantial $3 billion since its conversion to a REIT in 2015.

In response to the allegations, Equinix stated that it would conduct a thorough investigation into the claims made by Hindenburg Research.

While Hindenburg’s claims have raised concerns in the market, brokerage TD Cowen sought to calm investor apprehensions by describing the dip in share price as a “buying opportunity.”

The brokerage downplayed Hindenburg’s allegations, attributing them to a reiteration of a previous short thesis and suggesting that the concerns raised were not entirely novel within the industry.

According to data from LSEG, Equinix’s shares trade at a multiple of nearly 69 times the 12-month forward earnings estimates, underscoring the market’s robust valuation of the company despite recent turmoil.

Hindenburg’s criticism extends beyond Equinix’s financial practices, delving into the potential consequences of the company’s business model in light of emerging technological trends.

With the anticipated proliferation of generative AI expected to drive demand for data centers, Equinix finds itself at a critical juncture.

While the company has forecast annual AFFO above estimates, Hindenburg warns of potential challenges stemming from the escalating electricity consumption associated with AI applications.