Should You Retain Digital Realty Stock in Your Portfolio Now?

Digital Realty DLR is poised for growth with decent leasing activity amid robust demand for data centers as a result of increasing digital transformation, cloud computing and the proliferation of artificial intelligence. A diverse tenant roster, accretive buyouts, development efforts and solid balance sheet strength are other upsides.

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 expenses add to its woes.

In November 2025, Digital Realty announced that it had further collaborated with NVIDIA to offer advanced infrastructure at its campus in Manassas, Northern Virginia. The site houses NVIDIA’s AI Factory Research Center, including the NVIDIA Omniverse DSX blueprint for AI factories and a digital twin for gigascale AI facilities.

What Is Supporting DLR?

With the growth in 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, the top-tier markets are absorbing new construction at a faster pace. In the third quarter of 2025, the company signed $162 million of new leases, of which $76.1 million fell into the greater than 1-megawatt category, $64.9 million of 0-1 megawatt leases and $19.6 million of interconnection bookings.

DLR has a global presence, with 311 data centers in more than 50 metros with decent occupancy. The company is poised for growth with more than 5,000 global customers and growing. Its tenant roster includes several behemoths, with a majority being investment grade. 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 July-September period, Digital Realty acquired a property comprising around five acres of land in the Los Angeles metro area for $49 million, expected to support 32 megawatts of IT capacity. In addition, Digital Realty bought out two land parcels near its Franklin Park campus for $18 million.

Digital Realty is making efforts to enhance its portfolio by carrying out various development and redevelopment activities. The company has a robust development pipeline, which seems encouraging. As of Sept. 30, 2025, it had 10.2 million square feet of space under active development and 4.8 million square feet of space held for future development.

Digital Realty has a solid balance sheet with ample liquidity. The company exited the third quarter of 2025 with cash and cash equivalents of $3.30 billion. Its debt maturity schedule is well-laddered, with a 2.75% weighted average coupon as of Sept. 30, 2025. Its net debt-to-adjusted EBITDA was 4.9X, while its fixed charge coverage was 4.6X as of the end of the third quarter of 2025. As of Sept. 30, 2025, the company had around $3.20 billion of borrowings available under its global revolving credit facilities.

What Is Affecting Digital Realty?

DLR faces intense competition in its industry. Given the solid growth potential of the data center real estate market, competition is expected to increase in the upcoming period from existing players and the entry of new players. Amid this, there is likely to be aggressive pricing pressure in the data center market.

Moreover, Digital Realty has a substantial debt burden, with total debt outstanding, as of Sept. 30, 2025, of $18.2 billion. With a high level of debt, interest expenses are likely to remain elevated. In the third quarter of 2025, interest expenses increased 26.4% year over year.

Shares of this Zacks Rank #2 (Buy) company have lost 1.7% over the past three months against the industry’s gain of 3.3%. However, analysts seem bullish on it, with the Zacks Consensus Estimate for 2025 FFO per share having been revised marginally northward over the past month to $7.35.

Other Stocks to Consider

Some other top-ranked stocks from the broader REIT sector are Cousins Properties CUZ and W.P. Carey WPC, 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 CUZ’s 2025 FFO per share is pegged at $2.84, which indicates year-over-year growth of 5.6%.

The Zacks Consensus Estimate for WPC’s full-year FFO per share is pinned at $4.92, which calls for an increase of 4.7% from the year-ago period.

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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