Is Wall Street getting nervous about investment in new data centers? Shares of Savvis (SVVS) sold off sharply over the past two sessions after the company announced plans early Thursday to expand its data center footprint in London, Singapore and the New York area. The additional investment in new infrastructure led Savvis to lower its revenue guidance for both the fourth quarter of 2007 and full-year 2008.
Shares of Savvis closed Wednesday at $32, but fell to $28.12 by Thursday’s close and dropped another $2.91 today to $25.32. That works out to a drop of 20.9 percent in just two sessions.
This morning Morgan Stanley analyst Simon Flannery lowered his rating and price targets for Savvis, citing concerns about demand for data center space in a slowing economy. “We are becoming more cautious on the company’s prospects going into 2008, especially if we do indeed see a slowdown in enterprise spending,” wrote Flannery, who said the company might face difficulty finding tenants for its new data centers if the industry slows.
Wall Street analysts have been asking tough questions about demand in many of the recent earnings calls for publicly-held data center builders. The overbuilding of 2000-2002 has left analysts wary of the current data center construction boom. Savvis is getting scrutiny because it has made several expansion announcements amid mounting economic worries and has lowered its guidance to reflect additional capital expenditures. It also is focused on the financial sector, where future IT spending is seen as uncertain in the wake of subprime mortgage losses.
Equinix (EQIX) also sold off today following analyst commentary, albeit on a smaller scale than Savvis. Shares of Equinix fell $3.46 on the day to $107, a decline of 3.1 percent. Zacks senior technology analyst Steve Biggs launched coverage of Equinix with a rating of “hold.” Biggs said Equinix is well positioned and was upbeat about the prospects for its expansion in Europe. “However, a high valuation and significant capital expenses to build out its datacenters are causes for concern,” he added.
Concerns about individual shares don’t appear to have affected the enitre sector, as other data center builders had gains in Friday’s session, including Digital Realty Trust (DLR), Terremark (TNRK) and DuPont Fabros (DFT). Digital gained $1.04 to $39, Dupont Fabros added 78 cents to $19.46, and Terremark was up 27 cents to $6.13.