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Equinix shares stumble as investors grow concerned about competition

An employee of Equinix data center checks servers in Pantin, a suburb of Paris.
Martin Bureau | AFP | Getty Images

Shares of Equinix fell as much as 4 percent on Tuesday after CFO Keith Taylor said smaller companies are gaining market share in the data center business.

The stock recovered some of those losses and ended the day down about 3 percent.

While he wasn't sure why this is happening, Taylor said at the Goldman Sachs Communacopia Conference that these smaller companies may be undercutting larger competitors.

Pacific Crest Securities said in a research note, however, that the downward price action is "overblown" and that investors pulling out of the stock "may be missing long-term outperformance by the company."

The firm explained that Equinix "continues to pick and choose the right applications to put in its data centers that drive the most value to its customers and company." Pacific Crest also said that it doesn't believe that there is an overcapacity issue in the cloud business.

A spokesman for Equinix said in a statement: "Equinix has been and continues to be disciplined in our expansion efforts to accommodate the projected growth that we see in strategic markets globally while optimizing the mix of customers and ecosystems with whom companies come to Equinix to interconnect. As a part of our selling process, we ensure that customers understand the value we are delivering – the ability to interconnect with key strategic partners."

Disclosure: Pacific Crest Securities expects or intends to seek compensation for investment banking services from Equinix within the next three months. During the past 12 months, Equinix has been a client of the firm or its affiliates for non-securities related services. As of the date of this report, Pacific Crest makes a market in Equinix.