Data center owner Equinix boasts artificial intelligence as a boon to business when power consumption costs related to implementing AI could be detrimental to its profitability, according to an investigative report by short seller Hindenburg Research.

Hindenburg alleged in its report, published Wednesday, that Equinix is “selling an AI pipe dream” and has been conducting “major accounting manipulation” since transitioning to a real estate investment trust (REIT) in 2015.

After changing to a REIT, the firm began using adjusted funds from operations (AFFO) as a key metric in determining executive bonuses, per Hindenburg. In 2015, it reported a 47 percent drop in maintenance capital expenditures (CapEx), leading to an estimated 19 percent boost to reported AFFO, the report continued.

Hindenburg alleged Equinix has misclassified its CapEx numbers to make the company appear more profitable. The report cited interviews with dozens of former employees in alleging the manipulative accounting practices stemmed from top management.

For example, a former director at Equinix told Hindenburg the firm would seek new serial numbers for refurbished equipment to recognize the old, repaired item as new and book it as growth CapEx, according to the short seller. In another example cited, a former operations director explained how Equinix would classify routine battery replacements as growth CapEx by characterizing it as “‘replacing a battery system.’”

The report said former Equinix employees projected the company could struggle to update its old facilities to meet new power requirements and that this could be a threat as industry research suggests growth of AI is projected to double the power demands of data centers within two years.

Firm response: “We are aware of the report and in the process of reviewing claims made therein,” said an Equinix spokesperson in an emailed statement. “We take these matters seriously, and we will not respond further to the claims during our review. We will report back once that review is complete, as appropriate.”