How activist Elliott may use its data center know-how to lift returns at Equinix

Company: Equinix Inc (EQIX)

Business: Equinix is a real estate investment trust and operator of 270 data centers in 75 metro areas around the globe, providing carrier-neutral collocation and interconnection services to networks, cloud providers, enterprises and hyperscalers. The company’s platform combines a global footprint of International Business Exchange (IBX) and xScale data centers that support a customer’s need to implement, operate and maintain its collocated deployments. Equinix’s data centers are primarily located in key end-user markets in the Americas, Asia-Pacific, and Europe, the Middle East and Africa (EMEA) regions.

Stock Market Value: $75.53B ($771.75 per share)

Activist: Elliott Investment Management

Ownership: n/a

Average Cost: n/a

Activist Commentary: Elliott is a very successful and astute activist investor. The firm’s team includes analysts from leading tech private equity firms, engineers and operating partners – former technology CEOs and COOs. When evaluating an investment, the firm also hires specialty and general management consultants, expert cost analysts and industry specialists. Elliott often watches companies for many years before investing and have an extensive stable of impressive board candidates. Elliott has historically focused on strategic activism in the technology sector and has been very successful with that strategy. However, over the past several years its activism group has grown. The firm has been doing a lot more governance-oriented activism and creating value from a board level at a much larger breadth of companies.

What’s happening

Elliott has taken a position in Equinix.

Behind the scenes

Equinix is a REIT and operator of 270 data centers in 75 metro areas around the globe, providing carrier-neutral collocation and interconnection services to networks, cloud providers, enterprises and hyperscalers. Companies are increasingly relying on data, and the most efficient solution has been utilizing cloud services such as Equinix. The high costs associated with building and maintaining in-house data centers combined with fluctuating data needs allows colocation companies like Equinix to thrive. Colocation data centers allow users to rent out space for their hardware, rather than using their own space for this purpose. Within that market, Equinix has differentiated through their globally interconnected data centers located near top end-user markets, making its offerings sticky for data providers. Despite this, between June 24 and June 26, Equinix’s share price fell 17.75%. This drop was in response to the company’s Analyst Day, where Equinix revealed higher-than-expected capital expenditures of $3.3 billion for 2025 and $4 billion to $5 billion annual from 2026 to 2029 as well as a downgraded forecast for adjusted funds from operations (AFFO) to 5% to 9%. Previously, it was a range of 7% to 10%.

This increase in capex and drop in AFFO spooked inexperienced and short-term investors, but this was an opportunity for experienced long-term investors like Elliott Investment Management, which announced that it has increased its position in Equinix since it originally disclosed a 0.15% position in the company in the firm’s last 13F. It is important to note that Elliott has tremendous experience with data centers. Everyone knows Elliott as one of the most prolific activist investors today, but what sets the firm apart here is its experience as an investor, director and owner/operator of data center businesses. Elliott ran an activist campaign at data center operator Switch in 2021, where the investor settled for a board seat for Elliott senior portfolio manager Jason Genrich. The firm ultimately exited Switch via a sale with a 48.33% return versus -14.97% from the Russell 2000 over the same period. But more important is Elliott’s experience and perspective as an owner and operator of UK-based Ark Data Centers since 2012. This not only gives the firm unique experience but more of a shared perspective with management that could be welcoming of more of an amicable relationship here.

So, when the market saw the capex as a drain on cash flow that will not pay off for two to three years while the data centers are being built and leased, investors like Elliott saw it as a response to increased demand. Equinix has had record bookings from the tailwinds of artificial intelligence and hyperscaler growth over the past few quarters. With a 5% cost of capital, capex that will yield a 20% to 30% return is great for the long-term prospects of the company. Accordingly, AFFO is expected to drop as low as 5% next year, which scares short-term and less-knowledgeable investors. But as the capex is deployed, it will rise to 8% for the next three years and eventually go back up to 9%. That will happen without any help from Elliott. But there are ways that Elliott can use its knowledge of the industry and experience as an activist and operator to expedite and amplify those returns. First, Equinix could better communicate its plans to the market. Given the reaction to the company’s Analyst Day, Equinix could clearly benefit from improved market communications around its capex plan, AI strategy and long-term growth forecasts. Specifically, while Equinix doesn’t host AI model training, it has a unique opportunity to play a central role in AI inferencing – or deploying AI models to end users. As AI matures, the demand for inferencing will increase, and Equinix is well positioned to benefit as the largest third-party data center provider in the world with deeply interconnected datacenters in key end-user markets. There are also opportunities for the company to optimize its cost structure and lower interest expenses. Management has already taken certain steps in this direction and are targeting margin growth of 300 basis points from 49% to 52% by 2029 – the highest target ever set by the company. However, this is still an arguably conservative estimate, as many peers, including its closest peer, Digital Reality Trust (DRL), have higher margins than that. Additionally, a little financial engineering could decrease the company’s interest rate paid and improve on the margin Equinix’s AFFO per-share growth.

Historically, Equinix has commanded a premium multiple, and its share performance has moved almost in line with DRL. However, since its Analyst Day, Equinix’s returns have underperformed DRL by approximately 11 percentage points, and the company now trades at a slightly discounted 24-times enterprise value/EBITDA compared to 29-times for DRL. The company is on the right path but could use a little help from an experienced investor like Elliott in executing its plan and communicating it to the market. Elliott could do this as an active shareholder or with a board seat. Because of the firm’s industry experience and similar perspective to management, we would not be surprised to see it invited on to the board before the next annual meeting in May 2026.

Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.