Data center stocks have had a very strong quarter, with Rackspace (RAX), Equinix (EQIX), Akamai (AKAM), Limelight (LLNW), and Savvis (SVVS) all near 52-week highs. The REITs, however, have not shared in many of the recent gains, in spite of CoreSite's IPO last week. Digital Realty (DLR) is up just 1.4% over the last three months, while DuPont Fabros (DFT) has been essentially flat since the third quarter began.
Is this all justified? Rackspace is now trading at roughly 45x annualized earnings, on a top line growth rate in the low 20s, and a bottom line growth rate of 60% over the last 12 months. Equinix is just under 4x revenue on a 21% top line growth rate (excluding Switch & Data), and the company is barely breaking even. Savvis is up 37% over the last three months and hasn't had any top line growth over the last 12 months. While the industry's fundamentals remain very strong, there's not enough growth to support a 5x multiple on revenue.