With Q4/FY2024 reporting season underway for the data centers space, the OCOLO team thought we’d see what one of the most respected research teams on Wall Street has to say about two leaders in the space, Digital Realty and Equinix. Prior to the kickoff of earnings season, The TD Cowen Communications Infrastructure team at TD Securities Equity Research, led by Michael Elias, issued a Data Services Preview report predicting results for the companies in the team’s coverage universe, and following each reporting date, they issued updates on EQIX and DLR results versus expectations. Let’s see how they fared.
The Call
- “We favor EQIX setup over DLR into 4Q24 earnings.”
- “For EQIX, our enterprise checks point to continued enterprise demand acceleration in 4Q24 with enterprise pipelines building into 1Q25, which supports a continued trajectory of record gross bookings in the near-term, while like-for-like enterprise renewal spreads have increased to high single-digits in 2025 vs. mid-single-digits in 2024.”
- “Furthermore, our checks point to a greater degree of cost-cutting at EQIX than we previously anticipated, driving the potential for upside initial 2025 EBITDA and adjusted funds from operations/share growth guidance.”
- “For DLR, we expect downside leasing of ~$100MM in the seasonally slower 4Q24 as we have not identified any large deals signed by DLR via our checks.”
- “We expect DLR to guide to 5-6% 2025 Constant-Currency Core-funds from operations/share growth, with any upside (i.e., the potential for 7%) likely off the table due to stabilized hyperscale asset sales as part of the formation of its fund strategy.”
The Results
Equinix (Reported February 13th)
- “In line with our preview, Equinix highlighted record 4Q24 gross bookings driven by record gross bookings in both EMEA and APAC. Importantly, mgmt. noted that 4Q24 bookings could have been even higher, however its bookings were limited by the availability of capacity.”
- Equinix guided to 7-8% organic revenue growth. Initially, we viewed this guidance as disappointing, particularly in light of the gross bookings acceleration that mgmt. highlighted throughout the course of 2024. However, as we unpacked the guidance, mgmt. commentary seems to indicate no expectation for an increase in churn Y/Y as underlying demand remains strong following the record 4Q24 bookings as mgmt. highlighted a ‘very strong’ 1Q25 pipeline.”
- “Furthermore, in our discussion with mgmt., we got the sense that the swing factor explaining the downside organic revenue growth guidance is the timing of capacity delivery, as the company expects to deliver 13.0K cabinets in 2H25 vs. ~8.5K in 1H25.”
Digital Realty (Reported February 14th)
- “As previewed, Digital Realty (Digital) provided downside 4Q24 leasing of $99.5MM (in line with our ~$100MME), reported mixed 4Q24 results, and provided mixed 2025 guidance but delivered on its promise of 5% 2025 Core-funds from operations/share growth as it guided to CC Core FFO/share growth of 5.1-6.6% for 2025 vs. our 5.0-6.0%E.”
- “With the 2025 guidance in place, we believe there are three critical factors in place that investors will be paying attention to: 1) the rate of data center price increases, 2) the potential for another record leasing quarter in 2025, and 3) the potential to accelerate 2026 Core-FFO/share growth to at least 7%.
- “Relating to pricing, we continue to believe that broader data center market yields have stabilized and that the second derivative on pricing has turned negative, which suggests to us a more limited price increase opportunity relative to 2024 for Digital and the broader market.”
- “While mgmt. did not explicitly reaffirm the potential to have a record leasing quarter in 2025, based on our latest sense of demand, we believe the demand backdrop is supportive of an at or near-record leasing quarter.”
- “Based on the $305MM backlog it has for 2026 (vs. $392MM in 2025), we see the potential for Core-FFO/share growth to accelerate to 7% next year. However, we again caution against runaway Core-FFO/share growth expectations in 2026 and beyond given prior mgmt. commentary that it would use upside Core-FFO/share as an opportunity to either 1) increase development spend, and/or 2) monetize stabilized hyperscale assets with lower escalators.”
- “While the operating environment for Digital remains positive, we remain on the sidelines given its premium valuation despite lower growth and returns vs. peers.”
The Takeaway
- First and foremost, skilled and experienced analysts tend to strike the right “goldilocks” balance of reading both management commentary and the industry environment tea leaves throughout any given quarter to land at estimated results and an outlook that are in line with what companies in their coverage universe end up reporting. That’s clearly the case here with Michael Elias, and why the TD Cowen Communications Infrastructure team at TD Securities Equity Research is so well regarded.
- Second, while there were some curveballs, like timing of capacity delivery for EQIX and a negative turn in pricing suggesting less upside for DLR and the broader industry, there was nothing in the quarter to suggest any meaningful slowdown for either of these behemoths or data centers as a whole in 2025, so the team’s bullish outlook remains intact.
- Third, coming out of earnings, the team’s preference remains with EQIX (BUY) over DLR (HOLD) for both upside potential and current valuation reasons.
Many thanks to the TD Cowen team of Michael Elias, Cooper Belanger, Gregory Williams, CFA and Anton Rinnert, as always, for their keen and valuable insights!
What do YOU think? Should EQIX be a Buy and DLR a HOLD? Let us know in the comments!
