US hedge fund Hindenburg Research has accused data centre proprietor Equinix of accounting manipulation. This comes on the heels of Equinix appointing Adaire Fox-Martin, the former head of Google Ireland, as their CEO last week. Hindenburg Research claims Equinix is attempting to sell what they refer to as an “AI pipe dream”. Following the release of their damning report, Equinix saw a share drop of 3.5 percent, falling to $814.95 (£594.99) in New York by 9:55 am. Prior to this, the company’s stock had grown approximately 4.9% this year until Tuesday’s close.
Hindenburg Research is known for their critical reviews of various companies, including financial software company Temenos and Indian conglomerate Adani Group. They accuse Equinix, a real estate investment trust valued at nearly $80 billion, of deceptive accounting related to their key profitability metric, Adjusted Funds From Operations, or AFFO. Hindenburg alleges that this figure was overstated by no less than 22 per cent in 2023. Further, the hedge fund argues that despite these inflated figures, Equinix’s trading levels are staggeringly high, even when evaluated at surface level.
Equinix did not immediately respond to requests for comment. Meanwhile, they have chosen to pause their intended nine-year euro bond offering without providing a timeline for resumption. Informed sources, who wished to remain anonymous due to lack of authorisation, brought this to light.
Earlier in the month, Equinix announced that Fox-Martin is slated to take over as president and CEO in late Q2, with current CEO, Charles Meyers, transitioning to an executive chairmanship position. Equinix has been focused on expanding its data centre operations, most notably in Dublin and Frankfurt. Furthermore, they reported a 13 percent revenue increase and an 11 percent rise in AFFO from the previous year. They attributed this growth to the surging demand in the AI sector. Nevertheless, Hindenburg remains sceptical, stating that this surge in AI would present a challenge to Equinix due to the projected doubling of power requirements at their facilities and necessary upgrades. Also, Hindenburg alleges that Equinix’s accounting practices have skewed market perception, creating an illusion of superior cost leadership.
The misguided perception, together with the broad market enthusiasm for AI, has led to Equinix being favoured by investors as if it’s a major beneficiary of AI. However, quite the contrary appears to be the truth: AI presents a threat to Equinix’s existing energy-limited facilities, articulated the short seller. –Bloomberg