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Here is Why Shares of Equinix (EQIX) Tumbled on Tuesday


Shares of Equinix Inc. EQIX tumbled yesterday after the company’s Chief Financial Officer (CFO) Keith Taylor revealed some possible challenges at a presentation at The Goldman Sachs Group Inc.’s GS Goldman Sachs Communacopia conference.

At the conference, Taylor revealed that smaller companies have been gaining market share in the datacenter business. Moreover, citing TheFly, who recorded the conference call, Barron’s revealed that Taylor also hinted about increasing competition from Amazon AMZN and Alphabet’s GOOGL Google, which have resources and funds to make large investments in building infrastructure.

Additionally, the investors were worried after Taylor used words like "disciplined" and "thoughtful" while reaffirming the company’s guidance for third-quarter 2016.

Following these comments, shares of the data center major fell as much as 4.7% before settling down at intraday loss of 3.2%. The stock closed trade at $355.01 yesterday.

We opine that yesterday’s trading was mainly panic driven, as Taylor neither cut the company’s outlook, nor gave any indication of any possible dynamic changes in the of datacenter space.

Furthermore, we consider that by taking a "disciplined" and "thoughtful" approach, the company is preparing itself for the situations that it may face in a few years. The company has a track record of choosing right applications and investment plans which has helped it become one of the leading providers of network-neutral data centers and Internet exchange services for enterprises, content companies, systems integrators and network service providers.

Additionally, there is ample demand for data centers which we believe Equinix is well positioned to grab a large market share of. Per International Data Corporation, private cloud market is expected to reach $40.6 billion by 2019 from $8.9 billion in 2014, representing a CAGR of 35.4%.

Another research firm, Gartner predicts that public cloud market will register a year-over-year growth of over 17% and reach $208.6 billion in 2016 from $178 billion in 2015.

Equinix remains positive on growing demand for data centers attributed to the Big Data exchanges. To meet this demand, the global interconnection and data center company is expanding its IBX data centers globally and gaining popularity among tech companies looking for data management.

Expansions in important markets and consolidation of facilities in the existing ones have been part of Equinix’s core strategy. The company has made several acquisitions to continue expanding its data center capacity in many of its key markets since 2003. The most notable ones include, Telecity, Bit-isle and NImbo.

Currently, Equinix sports a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

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