Digital Realty Trust, Inc. (DLR) | The Buildout — AI Infrastructure
The Verdict
Digital Realty owns and operates a global data center, colocation, and interconnection platform. Its PlatformDIGITAL ecosystem connects enterprises and service providers in AI-ready facilities, while its Powered Base Building and Turn-Key Flex products supply physical power and connectivity for cloud and AI workloads. Hyperscale capacity supports large AI inference deployments.
| Market Cap | — |
| Revenue (TTM) | $6.8B |
| Revenue Growth | +18.7% |
| EBITDA Margin (TTM) | 47.0% |
| Net Debt | $18.0B |
| Earnings Beats | 4 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- 0–1 MW plus interconnection bookings hit $108 million in Q2 2026, the third consecutive quarterly record.
- Cash renewal spreads exceeded 25%, and greater-than-1 MW renewals repriced at a 66.7% cash mark-to-market.
- Backlog reached $1.9 billion at 100% share, roughly 30% of in-place data center rent, before $410 million of post-quarter hyperscale signings.
- Development pipeline doubled in H1 2026 to 1.4 GW under construction and $20 billion total cost, 63% pre-leased at an 11.5% expected stabilized yield.
- Balance sheet held at 4.7x debt/adjusted EBITDA with roughly $6 billion of liquidity and over $12 billion of estimated remaining hyperscale development capacity.
What We’re Watching
- Q3 reported core FFO ex promote is expected to moderate slightly on seasonal utility/R&M costs, higher capex, recycling, and the loss of a $0.02 FX benefit.
- Hyperscale leasing is episodic; H1 2026 signings already exceeded all of 2025, so quarterly block signings may not repeat.
- Atlanta gigawatt campus power timing remains unspecified; Kansas City power ramp begins early 2028.
- The outsized renewal-spread level may not repeat every quarter; management said the Q2 magnitude likely will not recur each quarter.
The operating thesis is strengthening: pricing, bookings, and contracted commencements all moved up while leverage stayed low. The open question is whether DLR can deliver and fund the enlarged development pipeline without execution or balance-sheet strain.
Earnings Beat
Q2 2026 revenue was $1,924 million and EBITDA was $1,005 million; the data spine's gross margin printed at 8.4%, though management does not frame results around a conventional cost-of-revenue line. The standout operating figure was $108 million of 0–1 MW plus interconnection bookings, a third consecutive record.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $1.9B | $1.6B | $1.5B | +28.9% |
| Gross margin | 8.4% | -3.8% | 55.7% | -4730bps |
| EBITDA | $1.0B | $782M | $673M | +49.4% |
| EPS | $1.25 | $0.51 | $2.99 | −58.0% |
| 0–1 MW plus interconnection bookings | $108M | $98M | n/a | — |
Our business is firing on all cylinders, and this quarter showcases the strength and scalability of our platform.— Andy Power, CEO, 2026-07-23
Management tone: Management's tone shifted decisively upward. The CEO described the business as "firing on all cylinders" and the CFO framed the quarter as record results across multiple regions, products, and customer segments. Management was direct on renewal spreads and Kansas City timing, but deflected on deal-level accretion by emphasizing platform-wide growth levers instead of transaction-by-transaction math.
Management Guidance
Management raised 2026 core FFO per share guidance to $8.15–$8.20 excluding net promote income, up from $8.00–$8.10; the midpoint implies roughly 10% constant-currency growth. Cash renewal spread guidance was raised to 9%–11%, same-capital cash NOI to 4.25%–5.25% constant currency, and net development capex to $4.25–$4.75 billion. Dispositions/JV capital guidance was increased by another $500 million, and management described increased confidence in extending double-digit core FFO per share growth into 2027 and beyond, without a formal 2027 range.
Trajectory
Revenue is accelerating on the data spine, with Q2 2026 revenue of $1,924 million up 17.7% sequentially after a 4.5% sequential decline in Q1 2026. The driver is signed leases converting to commencements plus renewal repricing; same-capital cash NOI growth strengthened to 8.9% reported in Q2, driven by 8.2% same-capital revenue growth. The margin picture is split, with the utility-heavy top line showing pressure while EBITDA margin expanded to 52.2%.
The Model
The model's FY+1 projection is revenue of $6,725 million and EBITDA of $3,282 million, a 48.8% margin. FY+2 projects revenue of $7,630 million and EBITDA of $3,777 million, a 49.5% margin. Near-term revenue is anchored by disclosed commencements and record backlog; FY+2 reflects continuing conversion of the development pipeline and private capital activity.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $6.2B | $7.3B | $8.5B |
| YoY Growth | — | +17.3% | +17.1% |
| EBITDA | $2.7B | $3.4B | $4.2B |
| EBITDA Margin | 44.4% | 46.6% | 49.0% |
Projections are the median of 5 independent model runs.
Management raised 2026 core FFO per share guidance to $8.15–$8.20 excluding net promote income, up from $8.00–$8.10; the midpoint implies roughly 10% constant-currency growth. Cash renewal spread guidance was raised to 9%–11%, same-capital cash NOI to 4.25%–5.25% constant currency, and net development capex to $4.25–$4.75 billion. Dispositions/JV capital guidance was increased by another $500 million, and management described increased confidence in extending double-digit core FFO per share growth into 2027 and beyond, without a formal 2027 range.
What Could Go Right — and Wrong
- Sustained renewal spreads near or above the 9%–11% guided range would keep same-capital cash NOI growing without new capital.
- A formal 2027 core FFO growth range at or above 10% would convert directional commentary into a hard forecast.
- Faster lease-up in Kansas City or Atlanta would pull the 9 GW growth runway forward.
- Disclosure of AI's share of total revenue or hyperscale bookings could broaden the visible AI tie.
- Expansion of the $10–$12 billion private capital deployment would grow management and development fee income.
- A hyperscale leasing air pocket after H1 2026 signings already exceeded all of 2025.
- Development delays from supply-chain congestion or utility slippage would push commencements right.
- Renewal spreads collapsing toward low single digits would remove the repricing engine behind same-capital cash NOI.
- A shift in large-footprint counterparties down the credit curve would change credit quality.
- Slower asset recycling would force more pipeline funding onto the balance sheet.
Looking Ahead
The next 12 months are about converting signed work. DLR has scheduled $635 million of annualized rent commencements in H2 2026 plus $480 million in 2027. The Teraco and Columbia Capital acquisitions have been announced. Kansas City construction is expected to begin in H2 2026, and the first two Blackstone Northern Virginia facilities are expected to stabilize H1 2027.
- Not disclosedColumbia Capital acquisition — Acquisition announced; close timing not disclosed; adds over $9B of fund commitments.
- Not disclosedTeraco additional 16% stake — Acquisition announced; close timing not disclosed; roughly $650M of DLR common stock.
- H2 2026Kansas City construction start — Construction expected to begin H2 2026.
- H2 2026Scheduled commencements delivery — $635M annualized rent due H2 2026; 45% Q3, 55% Q4.
- H1 2027Blackstone NoVa stabilization begins — First two facilities expected to stabilize H1 2027.
- Early 2028Kansas City power ramp begins — 600 MW of utility power begins ramping in early 2028.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $5.6B | $6.2B | $6.8B | +11.4% |
| Gross Margin | 54.6% | 41.6% | 13.8% | 1,307bps |
| EBITDA | $2.2B | $2.7B | $20.7B | +22.4% |
| EBITDA Margin | 40.4% | 44.4% | 47.0% | +396bps |
| Net Income | $602M | $1.3B | $799M | +117.2% |
| Free Cash Flow | −$570M | $233M | $3.4B | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)13.8%
- EBITDA Margin (TTM)47.0%
- Net Margin (TTM)11.7%
- ROIC2.1%
- FCF Conversion37.8%
- SBC / Revenue0.7%
The Company
Digital Realty develops and operates a global portfolio of data centers, colocation, and interconnection facilities. It sells PlatformDIGITAL as an ecosystem platform, Turn-Key Flex move-in-ready colocation, Powered Base Building shells, ServiceFabric software-defined networking, and connectivity products including Cross Connect and Metro Connect. That full-spectrum capacity supports enterprises, hyperscalers, and AI deployments from small interconnected cages to 200 MW AI inference leases.
The company is a REIT and runs as one GAAP operating segment, though management speaks in three growth pillars: colocation and connectivity, hyperscale, and strategic private capital. It operates 310 data centers across six continents, more than 6,000 customers, just over 3 GW operating, and a 9 GW owned growth runway. It funds large development partly through joint ventures and private funds, and uses utility and construction supply chains across a global footprint.
Business Segments
Competitive Landscape
The 10-K names Equinix, NTT, Global Switch Holdings Limited, and various private and regional operators as competitors.
- EquinixNamed in the 10-K as a competitor; not discussed further in the supplied material.
- NTTNamed in the 10-K as a competitor; not discussed further in the supplied material.
- Global Switch Holdings LimitedNamed in the 10-K as a competitor; not discussed further in the supplied material.
Supply Chain
Digital Realty sits between power suppliers and construction supply chains on one side and enterprise, cloud, and hyperscaler tenants on the other. Its disclosed supply chain is defined mainly by third-party power and procurement risk.
More on DLR: Earnings recap