Digital Realty: AI Data Center Boom Makes DLR a Buy

Digital Realty (DLR) is making headlines as a top pick for investors seeking exposure to the AI infrastructure boom. The company reported a record backlog of $1.9 billion, with second-quarter bookings hitting $307 million. This surge in demand is fueled by the rapid expansion of artificial intelligence and cloud computing, which require massive data center capacity.

In response to this robust demand, Digital Realty raised its 2026 Core FFO (funds from operations) guidance, signaling confidence in its growth trajectory. The company also boasts a development pipeline of 1.4 gigawatts under construction, expected to yield an impressive 11.5% return. This aggressive expansion positions DLR to capitalize on the secular trend of digital transformation.

Adding to the positive sentiment, Digital Realty maintains a diverse tenant base, reducing concentration risk. The company's strategic initiatives, including expanding into key markets and enhancing its product offerings, are designed to meet the evolving needs of hyperscale cloud providers and enterprises alike.

Analysts have taken notice, with Zacks Rank #2 (Buy) and upward revisions to consensus estimates. The stock's recent performance reflects growing investor optimism, but the question remains: is DLR still a good buy at current levels? Let's dive into why this data center REIT deserves a spot in your portfolio.

Digital Realty is at the epicenter of the AI revolution, as data centers are the backbone of machine learning and cloud computing. The record backlog and strong bookings indicate that demand is not just a temporary spike but a sustained trend. For investors, this translates into predictable revenue growth and potential for long-term capital appreciation.

The raised 2026 guidance is a key signal. It shows management's confidence in executing its development pipeline and capturing market share. With a yield of 11.5% on new projects, DLR is not just growing; it's growing profitably. This efficiency is crucial in a capital-intensive industry where returns on investment can make or break a REIT.

Compared to peers, Digital Realty stands out due to its scale and strategic positioning. While other REITs like Four Corners Property Trust (FCPT) and OUTFRONT Media (OUT) offer steady but modest growth, DLR provides a more dynamic growth story tied to technology trends. This makes DLR a more compelling choice for investors seeking higher upside.

However, it's essential to consider the risks. Interest rates and economic downturns could impact demand, and the competitive landscape is intensifying. Yet, with a Zacks Rank #2 and positive estimate revisions, the near-term outlook appears favorable. For investors, the key is to weigh the growth potential against these risks and decide if DLR aligns with their portfolio strategy.