Executive Summary / Key Takeaways

• AI is restructuring Digital Realty's entire business model, with AI-related deployments averaging over 50% of quarterly bookings since mid-2023 and the 0-1 megawatt plus interconnection segment delivering record performance, transforming the company from a traditional data center landlord into an AI infrastructure platform provider.

• The 0-1 megawatt colocation and interconnection segment has emerged as the primary growth engine, generating over $300 million in bookings across the past four quarters—up from approximately $200 million in 2023—while achieving record pricing power and positive re-leasing spreads that signal durable competitive advantages in connectivity-driven deployments.

• Capital recycling through the U.S. Hyperscale Data Center Fund represents a strategic masterstroke, raising over $3 billion in equity commitments ahead of schedule to support approximately $10 billion in total data center investment, enabling Digital Realty to meet hyperscale demand without overtaxing its balance sheet while maintaining leverage well below the 5.5x target at 4.9x.

• Power availability, permitting delays, and infrastructure constraints pose the most material execution risk, making it harder to bring new supply online at the pace customers require, particularly for near-term capacity blocks in North America where discussions now focus on late 2026 and early 2027 deliveries.

• Valuation at 22.9x operating cash flow and 27.3x EV/EBITDA reflects a premium for AI exposure, but this is supported by double-digit core FFO per share growth, a 3.1% dividend yield, and a development pipeline yielding 11.6% that suggests the market is pricing in sustainable competitive advantages rather than speculative excess.

Setting the Scene: The AI-Driven Data Center Arms Race

Digital Realty Trust, founded in 2002 with its first property acquisition, operates as a Real Estate Investment Trust that has quietly assembled one of the world's largest data center footprints. The company conducts its business through Digital Realty Trust, L.P., where it serves as the sole general partner, a structure that provides operational flexibility while maintaining REIT tax advantages. By September 30, 2025, this footprint encompassed 311 data centers globally across approximately 42.7 million square feet, spanning North America, Europe, South America, Asia, Australia, and Africa.

The data center industry is experiencing unprecedented demand fueled by AI proliferation, cloud expansion, and enterprise digital transformation. This demand surge has created a fundamental supply-demand imbalance, as power availability, permitting challenges, and infrastructure constraints make it increasingly difficult to bring new capacity online at the pace customers require. Digital Realty's strategic response centers on PlatformDIGITAL®, a global data center platform designed to deliver comprehensive space, power, and interconnection solutions across 48 strategic metros worldwide.

Digital Realty occupies a strong second-place position in the global data center REIT market behind Equinix (EQIX), but with a distinctly different strategic emphasis. While Equinix dominates interconnection density with its IBX platform, Digital Realty's competitive moat rests on its full spectrum product offering that serves both hyperscale and enterprise customers across a more geographically diverse footprint. The company's 284 facilities across 23 countries compare favorably to Equinix's 260 centers, giving Digital Realty broader reach in emerging markets where data gravity is shifting.

A pivotal strategic inflection occurred around 2015 when Digital Realty fully embraced a "full spectrum" product offering, moving beyond hyperscale services into colocation and enterprise markets. This shift was accelerated by the 2022 acquisitions of DuPont Fabros Technology and Teraco, which expanded capacity and capabilities. The strategy positioned Digital Realty to capture both massive hyperscale deployments and smaller, connectivity-rich enterprise workloads within the same global platform.

Technology, Products, and Strategic Differentiation

Digital Realty's PlatformDIGITAL® architecture represents more than a branding exercise—it is a cloud-agnostic foundation that enables customers to manage data gravity through a Pervasive Datacenter Architecture (PDx™) . This proprietary methodology allows the company to deliver scalable colocation solutions that optimize power, cooling, and interconnection in ways that competitors cannot easily replicate. The economic impact is tangible: PDx™ enables Digital Realty to support next-generation workloads while maintaining expected stabilized yields of 11.6% on its $9.7 billion development pipeline.

The company's High-density Colo 2.0 offering, supporting densities up to 150 kilowatts per rack, addresses the most demanding AI and high-performance compute requirements. This capability, deployable in roughly 14 weeks across 30 metros and 170 facilities, supports next-generation chipsets like NVIDIA (NVDA)'s Rubin and Grace Blackwell. The strategic importance extends beyond technical specifications—this positions Digital Realty as the infrastructure provider of choice for AI training and inference workloads that require massive power density within latency-sensitive metro locations.

ServiceFabric , expanded to 38 metros globally, combined with the Private AI Exchange launch, creates an open platform for enterprises to integrate data with AI capabilities. This interconnection suite, encompassing both physical cross-connects and virtual services, drives the record performance in the 0-1 megawatt segment. The platform's global reach and comprehensive service offering resonate with customers because it solves the hybrid multi-cloud complexity that enterprises face as they transition from on-premise IT to flexible cloud-connected architectures.

The full spectrum strategy fundamentally differentiates Digital Realty from competitors. While Equinix focuses intensely on interconnection density and Iron Mountain (IRM) targets secure storage niches, Digital Realty can serve a customer's entire data center journey—from a single cabinet for network connectivity to a 50-megawatt hyperscale deployment for AI training. This versatility creates customer stickiness and wallet share expansion opportunities that pure-play providers cannot match.

Financial Performance & Segment Dynamics: Evidence of Strategic Execution

The 0-1 megawatt plus interconnection segment has become Digital Realty's primary growth engine, delivering $85 million in new leases during Q3 2025 following a record $90 million in Q2 and $69 million in Q1. This sustained performance, totaling over $300 million across the past four quarters compared to approximately $200 million in 2023, demonstrates that the company's strategic focus on this category is capturing market share. The segment generated nearly $250 million of the record $1 billion in total bookings during 2024, establishing a foundation for accelerated growth.

Positive re-leasing spreads in this segment—4.2% in Q3 2025 and 3.8% in Q1—combined with strong pricing led by transactions in highly connected facilities, indicate genuine pricing power rather than market-driven rate inflation. This suggests Digital Realty's interconnection value proposition commands a premium that competitors cannot easily undercut. The cash re-leasing spread for greater than 1 megawatt deployments reached an exceptional 20% in Q3 2025, driven by deals in supply-constrained markets like Singapore, Chicago, Northern Virginia, and New Jersey.

Core FFO per share reached a record $1.89 in Q3 2025, representing 13% year-over-year growth, while same-capital cash NOI increased 8% year-over-year driven by 7.8% data center revenue growth. These metrics demonstrate that the company's strategy is translating into tangible financial results. The 2025 guidance midpoint implies approximately 10% year-over-year core FFO per share growth, reflecting momentum in the underlying business and the benefit of updated foreign exchange assumptions.

The development pipeline stands at $9.7 billion with an 11.6% expected stabilized yield as of Q3 2025, providing roughly 5 gigawatts of sellable IT load runway. This capacity is crucial for capturing AI-driven demand, as the 5 gigawatts of IT load in the company's power bank are expected to be significantly weighted toward AI workloads over the next several years. The pipeline's 70% pre-leasing rate at year-end 2024 de-risks development returns while demonstrating customer commitment.

Capital recycling through the U.S. Hyperscale Data Center Fund has generated over $3 billion in gross proceeds, including $900 million from contributing a 40% share of five operating assets and an 80% share of two development sites in Q2 2025. This strategy improves Digital Realty's strategic position by enabling it to meet growing hyperscale customer needs without overtaxing its balance sheet, while generating fee income that enhances overall returns. The fund structure allows Digital Realty to maintain a 20% to 60% stake in individual assets, aligning incentives while reducing capital intensity.

Outlook, Management Guidance, and Execution Risk

Management has consistently raised guidance throughout 2025, increasing the core FFO per share range to $7.32-$7.38, representing roughly 10% year-over-year growth at the midpoint. The constant currency guidance of $7.25-$7.30 implies over 8% growth, a 200-plus basis point improvement from forecasts at the beginning of the year. This upward revision reflects better-than-expected operating performance, strong re-leasing spreads, and growing fee income from the Hyperscale Fund.

The revenue and adjusted EBITDA guidance midpoints were each increased by $75 million for 2025, supported by a healthy backlog of over $550 million and robust market fundamentals. Management is targeting 10% top-line growth for 2026, indicating confidence that the current momentum extends beyond the immediate horizon. This outlook assumes continued strength in the 0-1 megawatt segment serving as the primary growth lever for 2025 and 2026, with substantial hyperscale capacity bolstering the backlog and extending the runway for core FFO growth into 2027 and beyond.

Execution risk centers on the company's ability to deliver capacity amid supply chain constraints. Power availability remains the limiting factor for scaling AI infrastructure, with utility companies requiring larger upfront commitments that raise the bar for entry and help flush out "land-flipping" entities. This maturation of the industry benefits established players like Digital Realty but also creates execution pressure, as near-term capacity blocks in North America are most in demand with discussions focused on late 2026 and early 2027 deliveries.

Management acknowledges that fourth quarter 2025 core FFO per share will be tempered by seasonally higher repairs and maintenance expenses, headwinds from non-core asset sales, and lower interest income associated with anticipated lower rates and cash balances. These factors create a natural deceleration heading into 2026, but the company expects to start the year on a strong footing given the robust backlog and market fundamentals.

Risks and Asymmetries: What Could Break the Thesis

Power availability and infrastructure constraints represent the most material execution risk, as these factors directly limit Digital Realty's ability to monetize its 5-gigawatt development pipeline. If the company cannot secure adequate power commitments or navigate permitting delays, the expected 11.6% stabilized yields on $9.7 billion of development projects could face compression. This risk is amplified by the fact that AI workloads require significantly more power density than traditional deployments, straining already tight utility infrastructure in core markets.

Hyperscaler concentration, while not quantified as a specific percentage of revenue, is evident in the booking patterns where four different customers signed the largest lease in each of the past five quarters. This concentration creates customer-specific risk if a major hyperscaler shifts strategy toward building more owned capacity or renegotiates terms aggressively. The company's ability to maintain pricing power above $200 per kilowatt month depends on retaining these large customers while diversifying into the enterprise segment.

Refinancing headwinds beginning in Q3 2025 will create a 325-basis-point drag from replacing EUR 650 million of 0.625% eurobonds with new EUR 850 million notes at 3.875%. While management has increased guidance despite this headwind, the full impact will be felt in 2026, potentially offsetting some benefits from lease commencements and re-leasing spreads.

On the positive side, an asymmetry exists in the 0-1 megawatt segment where Digital Realty is taking market share from a long tail of smaller competitors. Management notes that even looking at the #1 and #2 players in this category, there remains substantial share to capture from less sophisticated providers. If the company can accelerate its penetration of this addressable market while maintaining pricing discipline, growth could exceed the 10% baseline target.

Valuation Context: Premium Pricing for AI Infrastructure Exposure

At $161.02 per share, Digital Realty trades at 22.9 times operating cash flow and 27.3 times enterprise value to EBITDA, metrics that reflect a premium valuation multiple compared to traditional REITs but appear reasonable within the data center sector given the AI-driven growth trajectory. The company's 3.1% dividend yield provides income while investors wait for the development pipeline to contribute fully to cash flows, a combination that appeals to both growth and income-oriented shareholders.

Comparing Digital Realty to direct peers reveals a nuanced picture. Equinix trades at 19.0 times operating cash flow with a 2.6% dividend yield, reflecting its market leadership position but also its more mature growth profile. Iron Mountain trades at 19.8 times operating cash flow with a 4.1% yield, though its negative book value and heavy leverage reflect a different business model focused on converting real estate assets to data center use. Applied Digital (APLD), with its negative profitability and extreme valuation multiples, represents the speculative end of the AI infrastructure spectrum that Digital Realty has avoided.

Digital Realty's balance sheet strength, with debt-to-equity of 0.79 and interest coverage that supports its investment-grade rating, justifies a premium multiple. The company's ability to raise over $3 billion in private capital through the Hyperscale Fund while maintaining leverage at 4.9x demonstrates institutional investor confidence in the data center asset class. This access to capital at attractive rates creates a competitive moat that smaller providers cannot replicate, supporting the valuation premium.

Conclusion: The AI Infrastructure Platform Play

Digital Realty has engineered a strategic transformation from a traditional data center REIT into an AI infrastructure platform provider, leveraging its full spectrum product offering, global interconnection moat, and innovative capital recycling to capture the AI-driven demand surge. The 0-1 megawatt plus interconnection segment's record performance, generating over $300 million in bookings across four quarters, demonstrates that the company's focus on connectivity-rich, latency-sensitive deployments creates pricing power and customer stickiness that transcend commodity real estate economics.

The investment thesis hinges on two critical variables: execution of the $9.7 billion development pipeline amid power and supply chain constraints, and the company's ability to maintain pricing discipline as it scales hyperscale capacity through the U.S. Hyperscale Data Center Fund. If Digital Realty can deliver its late 2026 and early 2027 capacity commitments while keeping leverage below the 5.5x target, the 11.6% expected yields on development projects should translate into sustained double-digit FFO per share growth. Conversely, any misexecution on power procurement or construction timelines could compress returns and test investor confidence in the premium valuation.

For long-term investors, Digital Realty offers exposure to the AI infrastructure buildout with a risk profile that balances growth and income. The 3.1% dividend yield provides downside protection while the company captures upside from AI workloads that will increasingly require lower latency, inference-oriented deployments in core metro markets. The company's ability to serve both hyperscale training workloads and enterprise inference applications within the same global platform positions it uniquely in an industry where most competitors must choose one or the other.