Shares of Equinix, Inc. EQIX have gained 25.3% in the past six months compared with the real estate market’s growth of 8%.

The robust demand for data center infrastructure amid enterprises’ growing reliance on technology and acceleration in digital transformation strategies has aided this Zacks Rank #3 (Hold) stock in recent years. Its strategic expansion efforts, backed by a healthy balance sheet, have enabled it to capitalize on favorable industry trends so far.

This December, Equinix collaborated with Dell Technologies to help enterprises deploy flexible and scalable AI infrastructure.

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Let us now find out the factors behind the surge in the stock price.

In a world where digital transformation is paramount, Equinix continues to prove itself to be a pivotal player in the global digital infrastructure landscape. Its geographically diverse portfolio of IBX data centers is expected to benefit from enterprises’ increasing dependence on technology and the expedited implementation of digital transformation strategies.

Its business generates a substantial portion of monthly recurring revenue bookings (greater than 90% of total revenues in the last three years) from existing customers. The company generated 36% of the recurring revenues from its 50 largest customers during the three and nine months ended Sept. 30, 2024. Given the growing demand for data exchanges worldwide, Equinix is well-poised to grow its revenue base. For 2024, we estimate recurring revenues to increase 6.2% on a year-over-year basis. Higher revenues and lower costs will expand margins and increase profitability in the long run.

Equinix continues focusing on acquisitions and developments to expand data center capacity in key markets and strengthen its competitive positioning and global reach. Moreover, Equinix has an encouraging development pipeline. As of the end of the third quarter of 2024, it had 57 major builds underway across 35 markets in 22 countries, including 13 xScale builds representing more than 22,000 cabinets of retail capacity and more than 100 megawatts of xScale capacity through the end of 2025.

Equinix focuses on enjoying financial flexibility, and as of Sept. 30, 2024, the company’s liquidity totaled $7.2 billion. Moreover, it enjoyed investment-grade credit ratings of Baa2 from Moody’s, BBB rating from S&P Global Ratings and BBB+ from Fitch Ratings as of the end of the third quarter of 2024, rendering it favorable access to the debt market.

Moreover, solid dividend payouts are a massive attraction for REIT investors, and Equinix has remained committed to that. EQIX has increased its dividend five times in the last five years, and its five-year annualized dividend growth rate is 12.02%. Given a robust operating platform and a healthy financial position, its dividend distribution is expected to be sustainable over the long run.

Stocks to Consider

Some better-ranked stocks from the broader REIT sector are Vornado Realty VNO and Crown Castle CCI, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Vornado’s 2024 FFO per share has raised one cent in the past two months to $2.16.

The Zacks Consensus Estimate for Crown Castle’s current-year FFO per share has moved a cent north in the past two months to $7.00.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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