Is Digital Realty Trust Stock Worth Retaining in Your Portfolio?

Digital Realty Trust DLR is a leading data center REIT with a global presence across more than 30 countries. It owns 309 data centers and serves more than 5,500 customers by providing space, connectivity and digital infrastructure for cloud, AI and enterprise workloads. Strong leasing activity and a growing backlog are supporting steady business growth.The company is expanding through new developments and partnerships, including projects in Indonesia, Europe and Northern Virginia. Higher demand has led management to raise its 2026 earnings outlook. However, intense competition, high debt, ongoing investment needs and execution risks associated with large projects remain key challenges.In the past six months, shares of this Zacks Rank #3 (Hold) company have gained 11.3% compared with the industry's growth of 11.4%.Image Source: Zacks Investment ResearchWhat Aids DLR?Digital Realty is benefiting from strong demand for data centers as companies continue to invest in artificial intelligence (AI), cloud computing and digital services. This has led to healthy leasing activity and a growing backlog of signed contracts that have not yet started generating revenues. In the first quarter of 2026, the company signed total bookings worth $707 million at 100% share or $423 million at its share, including $98 million from smaller deployments and interconnection services. Its backlog grew to $1.8 billion, providing good visibility into revenues expected through 2027 and 2028. Lease renewals also remained healthy, with cash rental rates increasing 5%. Reflecting this momentum, management raised its 2026 Core FFO guidance to $8.00-$8.10 per share from the earlier range of $7.90-$8.00.The company's large and diversified customer base is another major strength. As of March 31, 2026, Digital Realty operated 309 data centers across more than 55 metro areas in over 30 countries. It served more than 5,500 customers and supported roughly 234,000 cross-connects. Portfolio occupancy stood at 90.1%, and the company added 116 new customers during the first quarter. Since many customers use multiple Digital Realty locations, the business enjoys stable recurring revenues and lower dependence on any single tenant. The planned acquisition of Blackstone-affiliated funds' interest in three hyperscale data centers in Northern Virginia further strengthens its position in one of the world's largest data-center markets.Digital Realty is also expanding its future growth platform through land purchases, acquisitions and new connectivity hubs. The company bought nearly 1,440 acres of land near Kansas City for about $475 million to build new hyperscale data centers. In June 2026, Digital Realty announced that it had agreed to acquire Blackstone-affiliated funds’ equity interest in three hyperscale data centers in Northern Virginia, increasing its ownership of high-quality assets in the world’s largest data center market. In June 2026, Digital Realty increased its Teraco ownership and agreed to acquire Columbia Capital, strengthening its data center platform, AI infrastructure capabilities, private capital business and long-term growth prospects. During the first quarter, the company bought an 873-acre site near Atlanta capable of supporting more than 1 gigawatt (GW) of IT capacity and another 30-acre site near Portland that can support 160 megawatts. It also expanded internationally by acquiring Telepoint in Bulgaria, land near Milan and data center assets in Malaysia, while opening its first Barcelona facility. These investments increase future development opportunities and strengthen its global network.The development pipeline continues to grow, with about 1.2 GW under construction and 61% already pre-leased, helping reduce leasing risk before projects are completed. Expected development spending for 2026 has been increased to $3.5-$4.0 billion, while the company continues targeting stabilized project yields above 10%. Financially, Digital Realty remains well positioned with $2.4 billion in cash, improved leverage of 4.7 times net debt-to-Adjusted EBITDA, a largely fixed-rate debt portfolio and fresh equity raised through its ATM program. Planned asset sales and joint ventures are expected to provide additional funding for future expansion.What’s Hurting DLR?Digital Realty faces intense competition from large data center developers and operators that are expanding across many of the same markets. Rising demand for AI and cloud services has attracted more investment, increasing available capacity. This gives customers greater bargaining power, making it harder for the company to raise prices or maintain strong returns on new and renewed leases.Another challenge is its dependence on a few major markets. As of March 31, 2026, Northern Virginia generated 20% of annualized rent, while Chicago and Frankfurt each contributed 6.4%. Changes in demand, pricing or power availability in these markets could affect operating results.Digital Realty has a substantial debt burden. As of March 31, 2026, the company had a debt load of about $18 billion and requires significant funding for new projects. With a high level of debt, interest expenses are likely to remain elevated. In the first quarter of 2026, interest expenses rose.18.2 % year over year. Although leverage has improved, higher interest rates, rising interest expenses and dependence on the equity and capital markets could increase financing costs and pressure future earnings.Stock to ConsiderSome better-ranked stocks from the other REIT sector are American Healthcare REIT AHR and Apple Hospitality REIT APLE, 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 AHR’s 2026 FFO per share has moved up 2.98% to $2.07 over the past two months.The Zacks Consensus Estimate for APLE’s 2026 FFO per share has moved up 4.63% to $1.58 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. Beyond Nvidia: AI's Second Wave Is HereThe AI revolution has already minted millionaires. But the stocks everyone knows about aren't likely to keep delivering the biggest profits. AI’s second wave is moving from infrastructure to implementation and these companies are at the forefront of this transition, positioned to become what Amazon and Google were to the internet era.See Stocks Now >>This article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks