Equinix (EQIX) stock has fallen under considerable pressure amid the September-October bout of volatility.
Although the data center giant finds itself on the right side of a profound secular trend (increased global appetite for data), the valuation remains incredibly rich.
Still, for long-term thinkers keen on playing the space, which is well worth a premium multiple, the latest dip in EQIX stock may be attractive.
In any case, I am neutral on the stock, primarily due to valuation concerns and potential risks that could present themselves over the next decade. (See Analysts’ Top Stocks on TipRanks)
Equinix: The Ultimate Data Play?
The company doesn’t just house servers and critical digital infrastructure; it also provides a wide range of data center services that span a multitude of industries. The company is quite heavily involved with the ongoing push into the cloud. Most remarkably, Equinix is also very geographically diversified.
Regardless, data is continuing to grow at a nearly unfathomable rate, driven by trends in some of the hottest areas of tech, most notably the Internet of Things (IoT), and autonomous technologies. Equinix remains in a magnificent spot to benefit from the advancements in a wide range of technological innovations that could really take off in the 2020s.
Furthermore, with emerging nations within the EMEA and APAC regions powering data growth, Equinix likely has all the tools to support its incredible multi-year rally, and potentially the means to more than double over the next five years.
With exposure to over 25 countries, Equinix can continue to support its impressive growth, even as the Americas region starts to become sluggish.
Any less-than-stellar growth in the Americas region, like that exhibited in recent quarters, shouldn’t be viewed as a sign to run for the exits.
If anything, the COVID-19 pandemic has accelerated the digital transformation. Its longer-term effects on the demand for data storage could be felt for many years to come, both at home in the Americas region, and beyond.
Wall Street’s Take
According to TipRanks’ analyst rating consensus, EQIX stock comes in as a Moderate Buy. Out of 11 analyst ratings, there are eight Buy recommendations, two Hold recommendations, and one Sell recommendation.
The average Equinix price target is $876.50. Analyst price targets range from a low of $731 per share, to a high of $950 per share.
Bottom Line
The nearly $2.2-billion company is quickly evolving into a behemoth.
It still has the means to continue growing revenues at a double-digit percentage pace. Higher-growth global markets and continued advancements in data-driven technology will likely keep Equinix stock powering higher through the 2020s.
Still, at 10.6 times sales, the admission price is steep, especially given the competitive landscape could become more crowded over the coming years.
In terms of potential risks, one must also consider rising competitive threats. Further, innovators will aim to decrease the size of their hardware moving forward, perhaps substantially, reducing the need for physical storage space.
Hardware is getting smaller and more efficient with time. That could work against Equinix over the next decade.
Disclosure: Joey Frenette doesn’t own shares of any mentioned companies at the time of publication.
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