BofA has shifted gears on communication infrastructure stocks, downgrading Crown Castle (NYSE:CCI) and SBA Communications (NASDAQ:SBAC) to Neutral from Buy.
BofA analysts highlighted Equinix (NASDAQ:EQIX) as its top data center pick while also stating that American Tower (NYSE:AMT) is its top tower pick.
Capex has faded, as have recession fears, the analysts explained. "Comm. infra. names reported 2Q23 earnings that were largely in line or ahead of Street estimates. Positive commentary marked data center results owing to a strong pricing environment and optimism regarding AI's potential impact," they wrote.
They wrote that EQIX is its top data center pick due to its solid balance sheet and positive business momentum.
"Tower earnings were less rosy as stocks reacted sharply to slowing domestic carrier capex and other idiosyncratic events. While we expected carrier capex to moderate in 2024+, the immediate slowdown was abrupt," the analysts added.
"We reiterate AMT as our top tower pick and favor its 1) holistic MLA (master lease agreement) contract structures domestically, 2) diverse international exposure (45% of revenues), and 3) peer leading AFFO/sh growth."
CCI and SBAC were lowered to Neutral as BofA sees domestic growth moderating, interest rates headwinds, elevated sprint churn, and company-specific elements hindering AFFO/sh growth.
"We continue to prefer data centers vs. towers due to secular tailwinds like AI and a dislocated supply/demand dynamic coupled with diminished recession expectations elevating growth over defense," the analysts concluded.