(Reuters) -Hindenburg Research on Wednesday disclosed a short position in data center firm Equinix (NASDAQ:EQIX), which operates as a real estate investment trust (REIT), alleging it exaggerated a profitability metric amid a race with big cloud firms including Amazon.com (NASDAQ:AMZN).
Equinix shares fell nearly 5% in afternoon trading as the short-seller said the REIT with more than 260 facilities globally was using an accounting trick to boost its adjusted funds from operations (AFFO).
The company was misclassifying its capital expenditure necessary for continuing operations as spending that it would use to expand its operations, making the company appear more profitable, Hindenburg said.
"We estimate that Equinix's manipulation of maintenance capex has resulted in a cumulative $3 billion boost to AFFO since its 2015 conversion to REIT status," Hindenburg said in a more than 10,000-word report published on its website.
The company is selling an "AI pipe dream" to investors, said the short-seller, known for its reports against companies including India's Adani Group and the investment firm of Carl Icahn.
Equinix, whose shares have risen 22% in the past 12 months, said it was investigating the claims made in the report.
The stock trades at nearly 69 times the 12-month forward earnings estimates, compared with peer Digital Realty (NYSE:DLR)'s 119, according to LSEG data.
Brokerage TD Cowen played down the concerns raised by Hindenburg Research.
"The thesis is largely a re-hashing of a short thesis published in 2022 which we disagreed with. The comments on overselling power capacity are incremental, but (it) is a broader industry practice," the brokerage said, adding that the share weakness was a "buying opportunity".
Analysts have said the boom in generative AI will spur demand for the company's data centers and last month, Equinix forecast annual AFFO above estimates.
But Hindenburg said a surge in electricity consumption due to AI could pose a threat to Equinix's power-constrained facilities.
It said large cloud players, some of which are Equinix's clients, are taking customers away from the company's main business of renting out physical rack-space at data centers.