Digital Realty Trust, Inc. (DLR) | The Buildout — AI Infrastructure
The Verdict
Digital Realty owns and operates data centers and the interconnection fabric that links them. Instead of making chips, models or software, it sells the physical ingredients AI and cloud workloads consume — power, space, cooling and network connections. Its customers are hyperscalers, enterprises, networks and cloud providers, and management argues that as delivering that infrastructure gets harder, the installed base becomes more valuable to the customers who depend on it.
| Market Cap | — |
| Revenue (TTM) | $6.8B |
| Revenue Growth | +18.7% |
| EBITDA Margin (TTM) | 47.0% |
| Net Debt | $16.4B |
| Earnings Beats | 4 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Development pipeline doubled in H1 2026 to 1.4 GW / $20B, 63% pre-leased at an 11.5% expected stabilized yield, with more than 80% in the Americas.
- Backlog reached a record $1.9B at 100% share and $1.4B at DLR share — roughly 30% of in-place data center revenue — before the $410M of July hyperscale signings.
- 0-1 MW plus interconnection bookings set three consecutive quarterly records through Q2 2026, up about 20% year over year.
- Cash renewal spreads came in above 25% blended, with the >1 MW cohort at 66.7% mark-to-market; the renewal guide was raised 250 bps to 9%-11%.
- Leverage stands at 4.7x debt-to-adjusted EBITDA, below the 5.5x long-term threshold and under 4.6x adjusting for the Blackstone JV timing, with about $6B of liquidity.
What We’re Watching
- Power delivery is the disclosed constraint: the 873-acre Atlanta parcel's power structure is unresolved, and Kansas City power does not begin ramping until early 2028.
- Management warns hyperscale leasing 'can be episodic from quarter-to-quarter' and says the >25% blended renewal spread may not repeat each quarter.
- Reported core FFO is noisy — Q2 2026 included $0.52 of promote, $0.07 of insurance and $0.02 of FX — and promote income sits inside core FFO as a management judgment call.
- Capital intensity is rising: 2026 CapEx guidance was raised twice to $4.25B-$4.75B, funded partly through capital recycling and stock-funded M&A.
The thesis looks stronger on the disclosed record. Contracted future revenue, renewal pricing and the development pipeline all reached all-time highs across two quarters, and guidance was raised twice while leverage came down and stayed below its 5.5x long-term threshold. The bear case rests on timing and definition rather than demand: power delivery gates how fast backlog converts, and part of the reported earnings jump came from one-time items. The open question is whether the 9-gigawatt envelope can be powered and delivered on the schedule management has laid out.
Earnings Beat
Digital Realty reported Q2 2026 revenue of $1,924M, up 17.7% sequentially, and EBITDA of $1,005M at a 52.2% margin. Core FFO per share excluding net promote income was a record $2.13, up 14% year over year. The quarter produced a record $108M of 0-1 MW plus interconnection bookings and over $261M of renewals signed at over 25% blended cash re-leasing spreads. Reported core FFO per share was $2.65, including $0.52 of net promote income and $0.07 of business-interruption insurance.
| 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 + interconnection bookings | $108M | $98M | n/a | +20% y/y |
| Total backlog (DLR share) | $1.4B | $1.0B | n/a | +75% since year start |
Our business is firing on all cylinders, and this quarter showcases the strength and scalability of our platform.— Andrew Power, CEO, 2026-07-23
Management tone: Management's language escalated between Q1 and Q2 2026, with the Q2 script describing the business as 'firing on all cylinders' and extending the growth claim to a 'double-digit core FFO per share growth runway into 2027 and beyond.' The renewal guide was raised twice in one half, from 6%-8% to 9%-11%, and community and water-use language entered the CEO script as public attention on data centers grew. Power-based occupancy improvement, reaffirmed at Q1, was not explicitly updated at Q2.
Management Guidance
On the Q2 2026 call management raised full-year 2026 guidance across the board. Core FFO per share excluding net promote income went to $8.15-$8.20, a midpoint implying 10% constant-currency growth. Cash renewal spreads were raised 250 bps to 9%-11%; same-capital cash NOI (constant currency) to 4.25%-5.25%; development CapEx net of partner contributions to $4.25B-$4.75B; and dispositions/JV capital by another $500M. Management said Q3 2026 reported core FFO ex-promote is expected to moderate slightly, citing the seasonal ramp in net utility and R&M expenses, a pickup in CapEx spending and asset recycling, and the loss of a $0.02 FX benefit.
Trajectory
Revenue has stepped up through 2026: $1,635M in Q1 2026, then $1,924M in Q2 2026, a 17.7% sequential rise. Over the past four quarters it moved from $1,577M in Q3 2025 to $1,924M, while EBITDA rose from $635M to $1,005M and the EBITDA margin moved from 40.3% to 52.2%. Record renewal pricing, scheduled backlog commencements and scaling fee income are the stated drivers; rising interest expense and depreciation work the other way. Q2's headline earnings were flattered by one-time items inside core FFO, and management guides Q3 to moderate slightly.
The Model
The model projects FY+1 revenue of $6,928M with EBITDA of $3,319M (47.9% margin), and FY+2 revenue of $7,900M with EBITDA of $3,832M (48.5% margin). The near term is anchored by contracted commencements — $635M scheduled in H2 2026 and $480M in 2027 — on top of the record backlog. The FY+2 step-up depends on the 1.4 GW development pipeline converting and on the private-capital platform scaling fee income.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $6.2B | $6.9B | $7.9B |
| YoY Growth | — | +11.9% | +14.0% |
| EBITDA | $2.7B | $3.3B | $3.8B |
| EBITDA Margin | 44.4% | 47.9% | 48.5% |
Projections are the median of 5 independent model runs.
On the Q2 2026 call management raised full-year 2026 guidance across the board. Core FFO per share excluding net promote income went to $8.15-$8.20, a midpoint implying 10% constant-currency growth. Cash renewal spreads were raised 250 bps to 9%-11%; same-capital cash NOI (constant currency) to 4.25%-5.25%; development CapEx net of partner contributions to $4.25B-$4.75B; and dispositions/JV capital by another $500M. Management said Q3 2026 reported core FFO ex-promote is expected to moderate slightly, citing the seasonal ramp in net utility and R&M expenses, a pickup in CapEx spending and asset recycling, and the loss of a $0.02 FX benefit.
What Could Go Right — and Wrong
- H2 2026 commencements land on schedule, converting the $635M of scheduled annualized rent into revenue.
- Kansas City signs a lease and the roughly 1.5 GW of 2027-2028 active dialogue converts to signed backlog.
- The AI share of 0-1 MW bookings rises back above about 20%, shifting the AI story from inference-adjacent to AI-central.
- Fee income scales toward the top of the roughly $45M per quarter normalized run-rate as $10-12B of private capital deploys.
- Teraco and Columbia close in H2 2026 and integrate into the fee platform as planned.
- Power delays slip the H2 2026 and 2027 commencement schedule, pushing revenue recognition to the right.
- Renewal spreads normalize toward the initial 2026 guidance range of 6%-8%, eroding the pricing-power thesis management has pre-flagged as non-recurring at the >25% level.
- A quarter with no large hyperscale signing shows how lumpy the business remains.
- Development cost inflation — Americas cost per MW rose to about $14M from about $12.5M — outpaces rents and compresses returns.
- Competitor supply from Equinix, NTT and others pressures pricing in currently constrained markets.
Looking Ahead
Over the next twelve months the story turns on execution. About $635M of annualized rent is scheduled to commence in H2 2026, split 45% in Q3 and 55% in Q4, followed by $480M in 2027. The Blackstone Northern Virginia assets are expected to stabilize in H1 2027, Teraco and Columbia are slated to close in H2 2026, and Kansas City construction is set to begin in H2 2026. Power delivery timing — Atlanta unresolved, Kansas City ramping from early 2028 — is the variable that decides how much of the contracted pipeline converts on schedule.
- Q3 2026Q3 2026 earnings — Tests 0-1 MW bookings above $100M and renewal spreads in guide.
- H2 2026H2 commencements begin — Follows $208M of annualized rent commenced in Q2 2026.
- H2 2026Kansas City construction start — Construction to begin; power ramps early 2028.
- H2 2026Teraco and Columbia close — Both transactions expected to close in H2 2026.
- H1 2027Blackstone assets stabilize — First two of three Northern Virginia facilities expected to stabilize.
- Early 2028Kansas City power ramp — 600 MW of utility power begins ramping 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 | $3.2B | +22.4% |
| EBITDA Margin | 40.4% | 44.4% | 47.0% | +396bps |
| Net Income | $602M | $1.3B | $799M | +117.2% |
| Free Cash Flow | −$570M | $233M | $1.4B | — |
| 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%
- ROIC2.2%
- FCF Conversion42.4%
- SBC / Revenue1.1%
The Company
Digital Realty Trust is a REIT that owns and operates data centers, colocation facilities and the interconnection fabric that ties them together. It sells the physical inputs AI and cloud workloads need — power, space, cooling and network connections — rather than chips, models or software. The portfolio held 310 data centers across six continents as of December 31, 2025, serving roughly 6,000 cloud, network, enterprise and service provider customers.
Operations run across two ends of the power spectrum: highly connected colocation and interconnection held on the balance sheet, and large hyperscale campuses increasingly held alongside private capital. The company reports as a single operating and reporting segment. It funds growth through a private-capital platform of funds, joint ventures and promote income, and it has moved its occupancy reporting to power-based metrics, retiring square-footage measures.
Business Segments
Competitive Landscape
Digital Realty's 10-K states that it competes with numerous data center providers globally, naming Equinix, Inc. and NTT, various private operators in the U.S., and Global Switch Holdings Limited and various regional operators across EMEA, APAC, Latin America, Africa and Australia. The dynamic the record describes is one of scarce supply: management attributes renewal pricing power to supply-demand imbalance in constrained markets. The main displacement risk the source supports is self-build or joint-venture bypass at the mega-campus level.
- Equinix, Inc.Named in the 10-K as a competitor; not discussed further.
- NTTNamed in the 10-K as a competitor; not discussed further.
- Global Switch Holdings LimitedNamed in the 10-K as a European competitor; not discussed further.
- Not named by Digital Realty as a competitor; the source's cross-stack themes cite Blackstone's $150B+ of data center assets with a $160B pipeline.
Supply Chain
Digital Realty sits between power and equipment suppliers and its hyperscale and enterprise tenants. Its 10-K says it depends on third-party power suppliers and may face supply-chain disruptions. No supplier is named as a sole source.
More on DLR: Earnings recap