Executive Summary / Key Takeaways

• Accelerating Growth Trajectory: Digital Realty is poised for sustained, accelerating FFO per share growth, with 2025 guidance at $7.15-$7.25 per share (midpoint ~7% YoY growth), driven by record bookings in its 0-1 megawatt plus interconnection segment and robust hyperscale demand.
• Full-Spectrum Platform & Technological Edge: The company's global PlatformDIGITAL, enhanced by innovations like high-density Colo 2.0 (150 kW/rack) and expanded ServiceFabric, provides a unique competitive moat, enabling seamless scalability and superior interconnection for diverse customer needs, from hybrid IT to advanced AI workloads.
• Fortified Financial Position & Capital Strategy: DLR has significantly de-leveraged to 5.1x (below its 5.5x target) and boasts over $7 billion in liquidity, bolstered by a successful U.S. Hyperscale Data Center Fund that has secured over $3 billion in LP equity commitments, providing a substantial war chest for future development.
• Strong Demand & Pricing Power: Surging demand for data center capacity, particularly AI-driven, is translating into strong pricing power, evidenced by Q2 2025 cash renewal spreads of 7.3% and new data center leasing rates reaching $244 per kilowatt per month in Q1 2025, with a record backlog of $826 million providing multi-year revenue visibility.
• Strategic Global Expansion: DLR continues to expand its footprint in high-demand core markets and strategically enter new regions like Indonesia, leveraging its operational expertise and long-standing utility relationships to secure power and deliver critical infrastructure ahead of competitors.

The Digital Foundation: A Global Platform for the AI Era

Digital Realty Trust, Inc. (DLR) stands as a foundational pillar of the global digital economy, operating as a specialized real estate investment trust (REIT) focused on owning, acquiring, developing, and operating data centers. Since its inception in 2002, DLR's core mission has been to maximize sustainable long-term growth in earnings and funds from operations (FFO) per share, cash flow, and returns to its stakeholders. This is achieved by delivering comprehensive space, power, and interconnection solutions to a diverse global customer base, ranging from cloud and IT services to financial institutions and social networking giants.

The company's strategic evolution over the past two and a half years has been particularly transformative, aiming to enhance its long-term sustainable growth profile. This involves a deliberate focus on strengthening its customer value proposition, innovating across its unmatched global portfolio, and diversifying its capital sources. This strategic pivot has positioned DLR to capitalize on the accelerating trends of enterprise digital transformation, cloud computing, and the burgeoning demand for artificial intelligence (AI) infrastructure.

Technological Moats: Powering Performance and Connectivity

At the heart of Digital Realty's competitive advantage lies its differentiated technology and architectural approach. The company's PlatformDIGITAL serves as a global data meeting place, providing customers with a secure and scalable environment to deploy their critical IT infrastructure. This platform is underpinned by DLR's Pervasive Datacenter Architecture (PDx), a proven methodology that enables efficient management of data gravity challenges and powers innovation for its diverse clientele.

DLR's commitment to technological leadership is evident in its specialized offerings. Its high-density Colo 2.0 solution, for instance, provides advanced cooling capabilities to support power densities of up to 150 kilowatts per rack. This is a critical differentiator, as it can accommodate three NVIDIA (NVDA) H100 systems within a single rack, directly addressing the escalating power requirements of modern AI and high-performance computing (HPC) workloads. This solution is available in 30 markets and can be deployed within 12 weeks, offering tangible benefits in terms of speed to market and operational efficiency for customers.

Furthermore, DLR's ServiceFabric is a key enabler of its interconnection capabilities, having expanded to 38 metros globally. This platform facilitates strategic collaborations, such as with Console Connect, which extends ServiceFabric's reach to over 100 new third-party data centers and more than 75 new cloud on-ramps. The introduction of Private AI Exchange via ServiceFabric further underscores DLR's innovation, providing an open platform for enterprises to seamlessly integrate their data with AI capabilities. The company also boasts over 30 DGX-certified data centers, showcasing its readiness to support NVIDIA's advanced AI systems. These technological advancements translate into a robust competitive moat, allowing DLR to command strong pricing, enhance customer loyalty, and drive higher recurring revenue streams.

Competitive Landscape: Global Scale in a Dynamic Market

Digital Realty operates in a highly competitive and rapidly evolving industry. Its primary direct competitors include Equinix (EQIX), American Tower (AMT), Iron Mountain (IRM), and Crown Castle (CCI), all vying for market share in data center, colocation, and interconnection services.

Equinix, often seen as a leader in global interconnected ecosystems, typically demonstrates faster revenue growth and stronger profitability margins than DLR. While EQIX excels in innovation speed and market share capture in high-growth areas like edge computing, DLR differentiates itself through its emphasis on a "trusted foundation" for enterprises and its PDx methodology, which prioritizes scalable and reliable solutions tailored to specific enterprise needs. DLR's global footprint, spanning 308 data centers across six continents, provides a compelling value proposition for customers seeking seamless scalability and consistent service delivery worldwide.

Compared to American Tower, DLR holds an advantage in data center specialization, offering a more integrated approach to data management. However, AMT's telecom background often provides it with greater operational scale and potentially faster project execution in certain shared markets. Similarly, DLR generally outperforms Iron Mountain in advanced data center capabilities and interconnection depth, as IRM's focus remains more on secure information management and storage. Crown Castle, with its telecom infrastructure emphasis, also presents a different competitive angle, where DLR's specialized data center offerings provide superior scalability for data-intensive applications.

Despite the intense competition, DLR''s strategy of focusing on major markets with robust and diverse demand (hyperscale, service providers, network providers, enterprise) rather than single-threaded customer "islands" is a key differentiator. This approach leverages locational and latency sensitivity, true supply barriers, and the fungibility of demand, allowing DLR to maintain strong pricing power and achieve development yields that are "a couple of hundred basis points higher than the average Joe data center competitor." The company's long-standing relationships with utilities and its proactive approach to securing power and managing supply chains also provide a significant competitive edge in a market where power availability is increasingly tight.

Financial Momentum and Strategic Capital Deployment

Digital Realty's strategic initiatives are clearly translating into robust financial performance. For the second quarter of 2025, the company reported a record core FFO of $1.87 per share, marking a robust 13% year-over-year increase. This outperformance contributed to an upward revision of its full-year 2025 guidance for revenue, adjusted EBITDA, and core FFO per share. Total operating revenues for Q2 2025 reached $1.49 billion, up 10.1% year-over-year, with data center revenue growing by 11%. Adjusted EBITDA also saw a significant 13% year-over-year increase.

The company's operational strength is further underscored by its leasing activity. Q2 2025 saw a record $90 million in 0-1 megawatt plus interconnection bookings, an 18% increase over the prior record. This segment has consistently grown, with over $300 million booked in the last four quarters, demonstrating strong momentum and durable pricing power. Overall, new data center leasing achieved a rate of $244 per kilowatt per month in Q1 2025, a 10% increase from the prior record. Renewal leases in Q2 2025 saw a blended 7.3% cash increase, with greater than 1 megawatt renewals achieving a robust 14% uplift. Churn remained low at just 1% in Q2 2025.

DLR's financial health is robust, with over $7 billion in liquidity and a net debt-to-EBITDA ratio of 5.1x, comfortably below its long-term target of 5.5x. This strong balance sheet is a direct result of a diversified capital strategy that includes opportunistic recycling of capital and strategic private capital partnerships.

The launch of the U.S. Hyperscale Data Center Fund, which has secured over $3 billion in LP equity commitments, is a testament to this strategy, providing potential to support approximately $10 billion in total data center investment. This fund, along with other joint ventures like Digital Realty Bersama in Indonesia and collaborations with Blackstone and Mitsubishi, enables DLR to meet escalating customer demand without overtaxing its balance sheet.

Development remains a key growth driver, with open commitments for construction contracts totaling approximately $2.2 billion as of June 30, 2025. The company's development pipeline stands at 5 gigawatts of total capacity, with 610 megawatts of shells currently under construction at an expected stabilized yield of 12.2%. For the remainder of 2025, DLR anticipates net capital expenditures of $1.7 billion to $2.2 billion, reflecting its commitment to expanding its global footprint.

Outlook and Risks

Digital Realty's outlook for 2025 is optimistic, with increased guidance for core FFO to $7.15-$7.25 per share, representing approximately 7% year-over-year growth at the midpoint. Revenue and Adjusted EBITDA guidance have also been raised, with normalized and constant currency growth anticipated at over 10%. The company expects cash re-leasing spreads to be between 5-6% and occupancy to improve by 100-200 basis points. This positive outlook is underpinned by a strong backlog of $826 million in signed but not yet commenced leases, providing significant visibility for multi-year growth, with substantial commencements scheduled for 2026 and beyond.

Despite the strong tailwinds, DLR faces several pertinent risks. Geopolitical and regulatory changes, including trade tensions and new energy regulations, could impact operations and increase costs. The ongoing SEC investigation into cybersecurity risk disclosures, while not expected to be material financially, could be time-consuming. The company also faces a 325-basis point refinancing headwind starting in Q3 2025 due to maturing low-coupon debt. Furthermore, the tight supply chain for power and physical infrastructure, coupled with increasing upfront commitments from utilities, presents ongoing operational challenges. While AI model efficiency advancements (like DeepSeek) could theoretically temper demand, DLR believes the overall AI adoption is still in its early innings and will ultimately drive greater utilization and demand for its facilities, especially as AI inference workloads require proximity to end-users.

Conclusion

Digital Realty Trust, Inc. is executing a compelling investment thesis centered on its global full-spectrum platform, technological leadership, and disciplined capital allocation. The company's strategic pivot to accelerate growth, evidenced by record bookings, robust financial performance, and a fortified balance sheet, positions it strongly to capitalize on the insatiable demand for data center capacity driven by digital transformation, cloud adoption, and the burgeoning AI revolution. While the competitive landscape remains dynamic and operational challenges persist, DLR's differentiated technology, strategic partnerships, and focus on high-value, supply-constrained markets provide a durable competitive advantage. Investors looking for a consistent compounder in the digital infrastructure space, with strong visibility into future growth and a commitment to sustainable practices, will find Digital Realty a compelling proposition.