Digital Realty Stock Rallies 14.9% in 3 Months: Will This Continue?

Digital Realty DLR shares have risen 14.9% in the past three months compared to the industry’s 1.7% decline.

The company is well-poised to gain from its unmatched global footprint of data centers with growing digital transformation, cloud computing and the proliferation of artificial intelligence.

A solid tenant base assures stable revenues. Accretive buyouts, investments in land and infrastructure globally and a robust development pipeline bode well for long-term growth.

Factors Behind DLR Stock’s Price Surge: Will the Trend Last?

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.

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. In the first quarter of 2025, the company signed $242.3 million of new leases, of which $172.1 million fell into the greater than 1-megawatt category, $54.1 million of 0-1 megawatt leases and $14.6 million of interconnection bookings.

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 augur future revenue growth for the company.

DLR is undertaking efforts to enhance its portfolio by carrying out various development and redevelopment activities. The company has a robust development pipeline, which seems encouraging. For 2025, DLR 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.

Analysts seem bearish on this Zacks Rank #3 (Hold) company, with the Zacks Consensus Estimate for its 2025 funds from operations (FFO) per share revised southward marginally over the past two months to $7.04.

Stocks to Consider

Some better-ranked stocks from the broader REIT sector are VICI Properties VICI and W.P. Carey WPC, 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 VICI Properties’ 2025 FFO per share has been raised marginally over the past two months to $2.34.

The consensus estimate for W.P. Carey’s current-year FFO per share has moved northward 1.2% in the past two months to $4.88.

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.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

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

Zacks Investment Research