AI ‘just another ecosystem for us,’ Equinix CFO says

Equinix CFO Keith Taylor joins Yahoo Finance Live to discuss data center REIT investing, rising costs, security, the expectations for the enterprise software space, and the outlook for growth.

Video transcript

JULIE HYMAN: Data center provider Equinix has established a track record of revenue growth using its platform to provide and connect digital infrastructure from companies like Google Cloud, Zoom, and Oracle. It offers them server space at its data centers as well as support services, like IT installation, server monitoring, and remote management.

Market Intelligence from IDC estimates spending on digital technology by organizations will grow eight times faster than the broader economy. For more on the growth outlook for Equinix, let's get to its chief financial officer, Keith Taylor. Keith, welcome. We have this whole "day-ta/dah-ta" conversation in the break, and it occurred to me, I didn't even ask if it's "Ee-quinix" or "Eh-quinix."

KEITH TAYLOR: "Eh-quinix."

JULIE HYMAN: "Eh-quinix!"

KEITH TAYLOR: There you go.

JULIE HYMAN: So there you go. So I said that one wrong. So talk to us about-- there's been such a big conversation recently about artificial intelligence. And as we know, that requires a lot of cloud computing, data center computing power. What's the potential around that opportunity for you guys?

KEITH TAYLOR: Well, first and foremost, the data center itself, it's an ecosystem and set of ecosystems. And AI, to us, is just another ecosystem. For us, think of us as the on and off ramp to both the internet and to the cloud. And AI is just another aspect of that. And for us, they're going to need capacity. They need proximity to their data. They need storage. They need distribution. And all of those work very well inside our environment.

BRAD SMITH: What are you hearing from your customers in the element of security on top of the data center as well right now? This is something that's come up in multiple earnings calls for some of your competitors, as well.

KEITH TAYLOR: Well, I think security is critically important for a number of reasons. One, to protect all the sensitive things that are in the marketplace. But for us, we think about it as physical security. There's also cybersecurity. But there's five elements of security before you can even get to your cage inside our data centers. And as a result, we're highly, highly concerned about security.

But we really focus on the physical. And then there's an aspect of basically the virtual, which is the cyber side. And it's the combination of those two that I think make us a very credible place to locate your infrastructure.

JULIE HYMAN: I mean, we have had situations in the past year where there have been attacks on utilities-- power plants, for example. So when I think of physical threats, that's an example that I think of. Is that something that-- have you experienced attempts on data centers, and how do you keep people from getting in?

KEITH TAYLOR: Well, again, it's a very highly protected asset-- no surprise. And they tend to be in sort of nondescript industrial locations, generally. But overall, the internet is inherently very redundant. And so even if there was a physical attack, the internet finds a way to reroute itself. And it's-- for us, I wouldn't say it's highly important for all of our customers. But it's not-- what's more important is the collection of the customers that sort of operate inside our environment. It's that ecosystem that's much more important to us and I think what the customers are looking for.

BRAD SMITH: During the height of some of the energy costs that we had seen last year, there was a big impact to data center companies and businesses. Has that started to abate a little bit, and how has that perhaps increased some of your own margins, especially at a time where there is a shift towards more sustainable energy uses, as well?

KEITH TAYLOR: It's an-- well, it's an absolutely great question. When you-- we're in all three regions of the world. But the one that we worry the most about as it relates to energy is Europe. And our cost went up substantially. And one of the commitments that we made to our customers is, one, we're very sophisticated in the hedges we put in place and how we procure power in advance. But we're passing that cost on to our customers. And the deal that we have actually had with our customers is we will pass it on to you with no margin.

So again, sophisticated hedging programs, number one, and then driving down our cost lower than the customer could get themselves, lower than our competitors, and lower than the prevailing market because we go in and buy on a periodic basis. But just to give you a sense, that added 400 to 500 basis points of growth to our 2023 guide. But it also impacted our margins because we agreed that we weren't going to take margin on it. So revenues are up. On an adjusted basis, our revenues are still going to grow 9% to 10%, with parts 14% to 15%.

JULIE HYMAN: Have you seen any pushback on that pricing? I mean, obviously, this is a time where we're talking about a company almost every day in the enterprise software space, some of them in the da-- that rely on data centers that are cutting costs. Is-- are you seeing any slowdown in growth or are any of your customers cutting back?

KEITH TAYLOR: We're not seeing a slowdown in growth. But absolutely it's going to impact businesses. Their costs are going up, and we all feel it, whether it's Equinix proper or whether it's our customers. But it's the combination of us being more sophisticated and actually procuring at a price point that they could not otherwise get it at. So yes, the customer doesn't like the fact that prices are going up. But when you're with Equinix, at least you're not paying the same rate as you'd be paying somewhere else.

BRAD SMITH: We've heard a lot of talk about what artificial intelligence would look like in data centers and in clouds. For Equinix and where some of your customers are looking for those solutions, where does that kind of sit within the set of solutions that you offer on the data center business side?

KEITH TAYLOR: Well, I think AI is going to be another ecosystem. It's still developing, as you know, Brad. And I think over time, as we continue to see how the market evolves, that's going to be a great opportunity for us, because, again, AI-- it's not just about one or two companies. It's really about a collection of assets and an infrastructure that will have to proximate-- or be proximate to a number of other locations and other providers.

And our sense is that it is evolving. It's a bit early yet. But we see it as another super opportunity, no different than the internet itself or telecom or financial services or even cloud. And again, we have a lot of cloud providers, again-- 3,000 cloud and IT services companies inside our assets. That's an ecosystem, and AI will be a component of one of those ecosystems, as well.

JULIE HYMAN: Keith, finally, we talked about energy costs a little bit. And data centers are sort of one of the quieter or less well known consumers of energy. What are you guys doing about making them more efficient? Because that's, I know, been a big push.

KEITH TAYLOR: Yeah. Julie, efficiency for us highly important, not only for how we consume and how we incur our costs but also what-- ultimately what we pass on to our customers. But our focus is trying to drive down efficiency, and we measure it by power usage, effectiveness, PUE. And so the lower that you get that, the more efficient you're running. And our customers mandate certain PUE objectives.

So it's a combination of driving down the efficiency-- to be most efficient-- and again, something really important to both the customer and ourselves-- but also having sustainability in mind. And again, our focus on renewability and using less water, less energy, electric vehicles, all of that is sort of a collection of what we need to do for our customers. And it makes a huge difference.

JULIE HYMAN: All right, Keith, thanks for coming in.

KEITH TAYLOR: Thank you.

JULIE HYMAN: Good to meet you in person.

KEITH TAYLOR: Thank you for having me.

JULIE HYMAN: Keith Taylor, Equinix chief financial officer. Appreciate your time this morning. Thank you.

KEITH TAYLOR: Thank you.