Equinix Soars 15%, Squeezes Shorts with $141M Loss, Bullish Outlook

Key Takeaway

• Equinix Inc. shares soared 15% after confirming financial reporting accuracy, marking its biggest rally since 2008.
• The surge resulted in $141 million in losses for short-sellers, with some expected to close positions to limit further damage.
• Wall Street remains optimistic, with no sell ratings and an anticipated 18% stock upside over the next year.

Equinix Shares Surge

Equinix Inc., a real estate investment trust (REIT) specializing in data centers, experienced its most significant stock rally in 15 years, with shares climbing as much as 15% on Thursday. This surge came after the company announced the near completion of an internal investigation into its accounting practices, which affirmed the accuracy of its financial reporting. The investigation's conclusion provided a substantial boost to Equinix's stock, which had been under pressure following allegations of accounting manipulation and overpromising on artificial intelligence (AI) capabilities by Hindenburg Research in March.

Short-Sellers Face Losses

The rally inflicted over $141 million in paper losses on short-sellers, according to S3 Partners LLC. These investors had bet against Equinix's stock, anticipating further declines. The unexpected rebound has prompted some of these traders to consider closing their positions to salvage remaining gains. Ihor Dusaniwsky, managing director of predictive analytics at S3, noted, "We should be seeing short covering as some shorts exit their trades in order to realize what is left of their year-to-date mark-to-market gains."

Analysts Remain Bullish

Despite the recent challenges, Wall Street analysts have maintained a positive outlook on Equinix. With 21 analysts rating the stock as a buy and seven recommending a hold, there are no sell ratings currently. Analysts project an 18% upside potential for the stock over the next 12 months. Jonathan Petersen of Jefferies anticipates that the closure of the accounting investigation will dispel the threat of regulatory action, viewing it as a "clear win" for Equinix. Similarly, Citigroup analyst Michael Rollins expects the stock to perform well in the near term, suggesting that attention will shift back to the company's operational fundamentals and growth prospects.

Street Views

• Ihor Dusaniwsky, S3 Partners LLC (Neutral on Equinix):

  "We should be seeing short covering as some shorts exit their trades in order to realize what is left of their year-to-date mark-to-market gains."

• Jonathan Petersen, Jefferies (Bullish on Equinix):

  "He expects the threat of any regulatory action related to the accounting probe — which has hovered over the company — to lift, foreseeing 'no impact' to the stock after the 'clear win' caused by the closing of the internal investigation."

• Michael Rollins, Citigroup Inc. (Bullish on Equinix):

  "We believe the market is likely to increasingly focus on the company’s operating fundamentals and the opportunities to accelerate organic revenue growth back to within the annual target range of 8-10% later in 2024 and potentially into future years."