Digital Realty Stock Rallies 17% in Six Months: Will This Trend Last?

Digital Realty’s DLR shares have risen 17% in the past six months against the industry’s 0.3% decline.

Amid robust demand for data centers, the company is well-positioned for growth with decent leasing activity, a diverse tenant roster, strategic investments, development efforts and solid balance sheet strength.

Last week, the company announced the launch of a data center innovation lab, Digital Realty Innovation Lab. This lab enables partners and customers to introduce their workloads or use pre-configured infrastructure to test AI and hybrid cloud connectivity before deploying at scale.

Analysts seem positive about this Zacks Rank #3 (Hold) company, with the Zacks Consensus Estimate for its 2025 funds from operations (FFO) per share revised 15 cents northward to $7.20 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.

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 310 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. During the April-June period, the company acquired land parcels in three metros. It acquired a 100-acre parcel in the Atlanta metro area for $120 million, which is expected to support more than 200 megawatts of IT capacity. The company acquired a 167-acre land parcel in the Dallas metro area for $11 million, which is expected to support around 480 megawatts of IT capacity.

Lastly, it acquired several land parcels for around $6 million as part of an assemblage in the Chicago metro area. 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 second quarter of 2025 with cash and cash equivalents of $3.55 billion. DLR’s net debt-to-adjusted EBITDA was 5.1X, while its fixed charge coverage was 4.7X as of the end of the second 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.

With the above-mentioned factors, we believe the rising trend in the stock is expected to continue in the near term.

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 adds to its woes.

Stocks to Consider

Some better-ranked stocks from the broader REIT sector are Plymouth Industrial REIT PLYM and Crown Castle CCI, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for PLYM’s 2025 FFO per share has moved 2 cents northward to $1.88 over the past month.

The Zacks Consensus Estimate for CCI’s 2025 FFO per share has moved 3 cents upward to $4.21 over the past two months.

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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