Digital Realty Trust, Inc. (NYSE: DLR) shares surged 11% on July 24, 2026, after the data-centre real estate investment trust reported stronger recurring funds from operations, record leasing activity and sharply higher renewal pricing. The company also raised its full-year revenue, adjusted EBITDA and core funds from operations outlook as demand from cloud platforms, enterprises and artificial intelligence infrastructure customers continued to absorb capacity. Digital Realty ended the quarter with a $1.4 billion annualised rental backlog at its ownership share and subsequently signed two hyperscale leases worth another $205 million of annualised rent at its share. The central investor question is whether this demand can produce sustained per-share growth after accounting for heavy development spending, $18.6 billion of debt and substantial new share issuance.
Why did Digital Realty stock rally after its second-quarter 2026 results?
Digital Realty reported second-quarter revenue of approximately $1.92 billion, representing growth of 29% from the corresponding period of 2025 and 18% from the first quarter of 2026. Adjusted EBITDA increased 19% year over year to $978 million.
The company reported core funds from operations of $2.65 per diluted share, compared with $1.87 a year earlier. However, the quarter included $188 million of net promote income generated through the successful development and leasing of three data centres held in a development joint venture.
Excluding that promote income, core funds from operations reached $2.13 per share, compared with $2.04 in the previous quarter and $1.87 in the second quarter of 2025. This adjusted figure provides a better indication of recurring property-level and platform performance than the headline $2.65 result.
Digital Realty also recognised a $94 million after-tax insurance settlement connected with a previously disclosed 2024 matter. Approximately $27 million of the settlement was included in core funds from operations as business-interruption recovery, while the property-damage portion was excluded.
Even after separating these items, the underlying performance was strong enough for management to raise its 2026 core funds from operations guidance, excluding net promote income, to between $8.15 and $8.20 per share. The previous range had been $8.00 to $8.10.
The shares closed at $199.08 on July 24 after reaching an intraday high of $207.47. Trading volume exceeded 10.7 million shares, compared with approximately 3.2 million shares during the previous session.
Digital Realty gained roughly 14.5% from its July 17 close and approximately 3.1% from its June 24 close. The stock finished about 4% below its 52-week high of $208.14 and well above its 52-week low of $146.23.
What does Digital Realty currently do and how is AI reshaping its portfolio?
Digital Realty operates more than 300 data-centre facilities across over 55 metropolitan markets in more than 30 countries. Its PlatformDIGITAL network provides customers with wholesale data-centre capacity, colocation space and interconnection services that connect companies with cloud platforms, telecommunications networks and other digital infrastructure providers.
The portfolio serves several categories of demand. Hyperscale customers lease large blocks of capacity, sometimes involving tens or hundreds of megawatts. Smaller deployments serve enterprises, cloud platforms and network providers requiring proximity to multiple carriers and business ecosystems.
Artificial intelligence is increasing demand across both categories. Training large models requires enormous computing clusters and high-density power infrastructure, while deploying those models creates a broader need for distributed computing, storage and network connectivity closer to users and corporate data.
Digital Realty’s second-quarter bookings illustrate this balance. The company signed contracts expected to generate $307 million of annualised rental revenue at 100% ownership. At Digital Realty’s economic share, the bookings represented approximately $208 million of annualised rent.
The 0-to-1-megawatt and interconnection categories contributed approximately $108 million at Digital Realty’s share, surpassing $100 million for the first time. These smaller deployments generally carry higher rent per kilowatt than large hyperscale leases and can deepen the network effects within established campuses.
Digital Realty also signed more than $99 million of annualised rent at its share from deployments exceeding one megawatt. The combination indicates that demand is not limited to a small number of enormous artificial intelligence campuses.
After the quarter ended, the company signed two additional hyperscale leases representing $410 million of annualised rent at 100% ownership and $205 million at Digital Realty’s share. These agreements materially expanded the future revenue pipeline before the third quarter had progressed very far.
Why are Digital Realty’s record backlog and renewal pricing so important?
Digital Realty ended June with signed leases representing $1.9 billion of annualised rental revenue that had not yet commenced. Its economic share of this backlog was approximately $1.4 billion.
This backlog provides unusually strong visibility into future revenue because the contracts have already been signed. The principal remaining requirements are completing the relevant facilities, delivering power and meeting contractual commencement conditions.
The weighted-average period between signing a second-quarter lease and its expected commencement date was nine months. The backlog will therefore not appear immediately in reported revenue, but it creates a pathway for growth through 2027 and potentially beyond.
Renewal pricing provided another important signal. Digital Realty signed second-quarter renewal leases representing approximately $262 million of annualised cash rent, with renewal rates increasing 25.4% on a cash basis and 32% under generally accepted accounting principles.
These increases suggest that available data-centre capacity remains scarce in important markets, particularly where access to electricity, fibre networks and suitable land is constrained. Existing customers may also prefer to renew rather than undertake the cost and operational risk of relocating critical technology systems.
Management consequently raised its expected full-year cash renewal-rate increase to between 9% and 11%, compared with its earlier range of 6.5% to 8.5%. The expected generally accepted accounting principles increase was raised to between 12% and 14%.
High renewal spreads can drive internal growth without requiring Digital Realty to acquire land or construct an entirely new facility. However, unusually strong pricing may moderate as new industry capacity enters the market or customers become more selective about artificial intelligence infrastructure spending.
The backlog is similarly valuable only when projects are delivered on schedule. Delays involving electricity connections, construction, equipment procurement or customer readiness could postpone rental commencement even when the underlying lease remains valid.
Can Digital Realty fund its data-centre expansion without excessive dilution?
Digital Realty is pursuing one of the largest development programmes in the real estate investment trust sector. Management increased its expected 2026 development capital expenditure, net of partner contributions, to between $4.25 billion and $4.75 billion.
The company expects average stabilised development yields above 10%. If achieved, those returns would compare favourably with the cost of debt and equity used to finance construction.
Digital Realty acquired land in the Kansas City metropolitan area for approximately $475 million to support up to two gigawatts of utility power. It also expanded its Atlanta position, where assembled land could support more than one gigawatt of information-technology capacity.
Other investments included land in Marseille capable of supporting up to 48 megawatts and two data centres in Malaysia containing 16.5 megawatts, together with land for another 14 megawatts.
The largest transaction involved acquiring a 64% interest in three fully leased Northern Virginia data centres containing 288 megawatts. The assets carried a gross valuation of approximately $7.8 billion and are expected to achieve an initial stabilised yield above 6.5%.
Digital Realty paid approximately $3.5 billion for its partners’ interests, including $1.2 billion in cash and 12.3 million Digital Realty shares. This structure preserved cash but increased the number of common shares participating in future earnings and dividends.
The company also issued approximately 13.5 million shares through its at-the-market programme during the first half, raising net proceeds of approximately $2.5 billion at an average price of $184.94.
The equity raised provides capital for attractive projects and limits the amount of additional debt required. However, the investment case depends on new developments and acquisitions increasing funds from operations faster than the expanded share count.
Issuing equity is not automatically destructive when the capital is deployed into projects offering returns above the company’s cost of capital. The relevant test is whether Digital Realty can generate enough incremental rental income to overcome dilution and financing costs.
How should investors assess Digital Realty’s debt and dividend position?
Digital Realty ended June with approximately $18.6 billion of total debt, including $17 billion of unsecured debt and $1.6 billion of secured and other borrowings.
Net debt was equivalent to 4.7 times adjusted EBITDA, while fixed-charge coverage stood at 5.2 times. These measures suggest that leverage remains manageable for a large real estate investment trust, although the absolute debt burden is significant.
The company expects to issue between $1.5 billion and $2 billion of long-term debt during the second half of 2026 at an assumed interest rate of 4.5% to 5.5%. This financing will help support the development pipeline but may increase interest expense.
Higher borrowing costs matter because data centres require substantial upfront investment before rent begins. Projects with long construction and lease-commencement timelines can expose Digital Realty to changes in interest rates, equipment costs and electricity infrastructure schedules.
The company continues to pay a quarterly dividend of $1.22 per common share, equivalent to an annualised distribution of $4.88. At the July 24 closing price, the dividend yield was approximately 2.45%.
The yield is lower than that offered by many traditional real estate investment trusts because investors assign Digital Realty a growth premium linked to data-centre scarcity and artificial intelligence demand. The dividend has also remained unchanged while management prioritised funding the development pipeline and strengthening the balance sheet.
Using the midpoint of core funds from operations guidance excluding promote income, the annual dividend represents a payout ratio of approximately 60%. That leaves a meaningful portion of recurring funds from operations available for investment, although development requirements remain far larger than retained cash flow alone can support.
Is Digital Realty stock still reasonably valued after the 11% rally?
At $199.08 per share, Digital Realty had an equity market value of roughly $75 billion based on its latest reported share count. Adding debt and preferred securities would produce a substantially higher enterprise value.
The shares traded at approximately 24.4 times the midpoint of 2026 core funds from operations guidance excluding net promote income. This is a premium valuation relative to many property sectors but reflects Digital Realty’s global platform, backlog, pricing power and exposure to artificial intelligence infrastructure demand.
Investors should avoid valuing the company using ordinary price-to-earnings ratios. Real estate depreciation reduces reported net income even when property values and rental economics remain stable, making funds from operations a more commonly used measure for real estate investment trusts.
The stock’s premium also creates a useful financing advantage. Digital Realty can issue shares at higher prices to fund development without creating as much dilution as it would at a depressed valuation.
However, the same premium means investors are already paying for a substantial portion of the expected artificial intelligence growth. The shares finished the July 24 session close to their 52-week high, leaving less room for construction delays, weaker leasing or higher financing costs.
Post-earnings analyst sentiment remained constructive. J.P. Morgan raised its target to $235, while TD Cowen upgraded Digital Realty to Buy as leasing demand and future revenue visibility strengthened. A broader published analyst consensus stood near $221 after the results.
The valuation may remain supportable if the $1.4 billion backlog converts into rent, renewal pricing remains strong and development projects produce double-digit stabilised yields. A sustained rerating beyond the current range would likely require additional evidence that per-share funds from operations can keep growing despite equity issuance.
What evidence would strengthen or weaken the Digital Realty investment case?
The most important proof point is backlog conversion. Digital Realty must complete facilities, secure power and commence leases within the expected timetable for signed contracts to become revenue.
The second proof point is per-share growth. Total revenue and adjusted EBITDA can rise rapidly while shareholders receive limited benefit if common shares are issued just as quickly. Core funds from operations per share therefore remains more informative than portfolio size alone.
Development returns represent the third test. Management expects stabilised yields above 10%, which would create value if projects are completed close to budget and leased at anticipated rates. Construction inflation, delayed utility connections or cost overruns could reduce those returns.
Demand concentration also requires attention. Hyperscale agreements can transform a development pipeline, but large customers may possess substantial negotiating power and can alter capital plans when artificial intelligence spending priorities change.
The investment case would strengthen if Digital Realty continues signing leases across both hyperscale and smaller interconnection categories, converts backlog on schedule and raises core funds from operations per share without materially increasing leverage.
It would weaken if electricity constraints delay projects, capital spending exceeds expectations, customers postpone deployments or equity issuance persistently offsets operating growth. The July 24 rally was supported by strong leasing evidence, but the premium valuation now requires consistent execution.
What are the key takeaways for investors tracking Digital Realty stock?
- Digital Realty shares gained 11% after second-quarter results exceeded expectations and management raised its 2026 outlook.
- Core funds from operations excluding net promote income increased to $2.13 per share from $1.87 a year earlier.
- The company signed $208 million of annualised second-quarter rental bookings at its ownership share.
- Digital Realty’s signed but not commenced rental backlog reached a record $1.4 billion at its economic share.
- Cash renewal rates increased 25.4%, indicating strong pricing power across constrained data-centre markets.
- The company had $18.6 billion of debt and raised approximately $2.5 billion through at-the-market share issuance during the first half.
- The next proof points are backlog conversion, development yields, electricity availability and growth in core funds from operations per share.
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