Digital Realty Stock Rallies 15.4% in 3 Months: Will This Trend Last?

Digital Realty DLR shares have risen 15.4% in the past three months compared with the industry’s 5.3% growth.

Amid robust demand for data centers, the company is poised for growth with decent leasing activity, a diverse tenant roster, accretive buyouts, development efforts and solid balance sheet strength.

Analysts seem positive about this Zacks Rank #2 (Buy) company, with the Zacks Consensus Estimate for its 2025 funds from operations (FFO) per share revised marginally northward to $7.04 over the past week.

Factors Behind DLR Stock’s Price Surge: Will This Continue?

With the growth of cloud computing, the Internet of Things and Big Data, and an increasing number of companies opting for third-party IT infrastructure, data center REITs like Digital Realty are experiencing a booming market. Demand is strong in top-tier data center markets, and despite enjoying high occupancy, these markets are absorbing new construction at a faster pace.  At 100% share, the company’s backlog of signed but not commenced leases reached a record high, crossing $1.3 billion as of March 31, 2025.

Digital Realty has a high-quality, diversified customer base comprising tenants from cloud, content, information technology, network, other enterprise and financial industries. It has a global presence, with 308 data centers in more than 50 metros with decent occupancy. The majority of the tenants are investment-grade, and numerous customers use multiple locations across the portfolio. This assures stable revenue generation for the company.

Digital Realty is expected to ride on its growth curve, backed by strategic investments in land, infrastructure and acquisitions. Subsequent to the first quarter of 2025, the company completed acquiring around 100 acres of land for around $120 million in the Atlanta metro area with an expected IT capacity of more than 200 megawatts. Such expansionary efforts will bring in future revenue growth for the company.

DLR is undertaking efforts to enhance its portfolio by carrying out various development and redevelopment activities. In recent years, Digital Realty has expanded in the Americas by adding capacity in Chicago, Dallas, Northern Virginia and Toronto. For 2025, the company expects to incur capital expenditures for its development activities (net of partner contributions) in the range of $3.0-$3.5 billion.

Digital Realty has a solid balance sheet with ample liquidity. The company exited the first quarter of 2025 with cash and cash equivalents of $2.32 billion. Its net debt-to-adjusted EBITDA was 5.1X, while its fixed charge coverage was 4.9X as of the end of the first quarter of 2025. In addition, Digital Realty currently enjoys BBB (Stable Outlook), BBB (Stable Outlook) and Baa2 (Stable Outlook) credit ratings from Fitch, S&P and Moody's, respectively, which provide it with favorable access to the debt market and lower borrowing costs.

Key Risks for DLR Stock

However, competition from other industry players is likely to lead to aggressive pricing pressure and weigh on Digital Realty’s prospects. A substantial debt burden and high interest rates add to its woes.

Other Stocks to Consider

Some other top-ranked stocks from the broader REIT sector are SBA Communications SBAC and Cousins Properties CUZ, each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for SBA Communications’ 2025 FFO per share has moved northward marginally in the past two months to $12.74.

The consensus estimate for Cousins Properties’ 2025 FFO per share has been raised marginally over the past two months to $2.80.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.

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This article originally published on Zacks Investment Research (zacks.com).

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