Hindenburg shorts data center firm Equinix alleging inflated profit metric

Hindenburg Research on Wednesday disclosed a short position in data center firm Equinix that operates as a real estate investment trust (REIT), alleging exaggerated profitability metric amid race with big cloud firms, including Amazon.com.

Equinix shares fell about 2 per cent in early trading as the short seller said the REIT with more than 260 facilities globally was using an accounting trick to boost its adjusted funds from operations (AFFO).

The company was misclassifying its capital expenditure necessary for continuing operations as spending that it would use to expand its operations, making the company appear more profitable, it said.

"We estimate that Equinix's manipulation of maintenance capex has resulted in a cumulative $3 billion boost to AFFO since its 2015 conversion to REIT status," Hindenburg said in a more than 10,000-word report published on its website.

The company is selling an "AI pipe dream" to investors, said the short seller, known for its reports against companies including India's Adani Group and the investment firm of Carl Icahn.

Equinix, whose shares have risen 22 per cent in the past 12 months, did not immediately respond to requests for comment.

It trades at nearly 69 times the 12-month forward earnings estimates, compared with peer Digital Realty's 119, according to LSEG data.

Analysts have said the boom in generative AI will spur demand for the company's data centers and Equinix forecast its annual AFFO last month that was above estimates.

But Hindenburg said a surge in electricity consumption due to AI could pose a threat to Equinix's power-constrained facilities.

It said large cloud players, some of which are Equinix's clients, are taking customers away from the company's main business of renting out physical rack-space at data centers.