EUR 850.00 For Business Accounts Only

Morningstar | Strong Global Data Center Demand Benefits Equinix

Equinix is the largest provider of colocated data centers in the world, and it has developed network-dense locations in major cities that would be extremely difficult for competitors to replicate. Telecom networks, cloud service providers, and other enterprises house their equipment and connect with each other at Equinix locations, and the presence of each attracts the others. We expect the importance of interconnection will continue to grow, and in our view, no company is better positioned to take advantage than Equinix.The utility of colocated data centers, where many different enterprises house their servers and networking equipment under one roof or on one campus, is growing as companies rely more on hybrid cloud models, where they use a combination of cloud services and their own hardware. By colocating, enterprises can directly connect their own equipment with multiple cloud providers, resulting in reduced latency and superior security, making the data center a draw for both sides. Equinix counts all the major cloud providers as clients, and, with other IT service providers, they generate about 30% of Equinix's revenue. While we think the cloud will be the biggest source of future growth, we think network service providers are crucial in enabling that growth. Not only are networks necessary for Equinix's tenants to reach the outside world, but they use Equinix facilities to peer with each other, making the locations critical components of the Internet's backbone and providing almost a quarter of Equinix's revenue. With its presence in many of the most traffic-dense cities in the world and more than 1,700 network service provider customers, Equinix facilities are major Internet exchange points in many of the world's biggest cities. We think it would be virtually impossible for those locations to move.While Equinix's model puts the company in the sweet spot today, the asset-heavy nature makes it susceptible to a downturn in data center demand. If the necessity of cloud service providers to the model drives those companies to become competitors or technological advances lead to tenants needing less space, Equinix could find itself with too much capacity.