Digital Realty Stock Surges on Strong AI Data Center Demand and Raised Guidance

What happened

Digital Realty Trust delivered exceptional first-quarter results in 2026, posting core FFO of $2.04 per share—representing strong double-digit year-over-year growth. The company signed leases totaling $707 million in annualized rent (100% share basis) and recorded its second-highest bookings quarter ever. Notably, it secured the largest megawatt lease in company history. The development pipeline surged to 1.2 gigawatts under construction, up more than 50% from the prior quarter, with 61% already pre-leased at an 11.4% average expected yield. Total backlog reached $1.8 billion, providing visibility into 2027 and 2028. Management raised 2026 core FFO guidance to a range of $8.00 to $8.10 per share, implying 9% growth at the midpoint.

Why the stock moved

The stock likely moved higher following the earnings release due to several positive factors. Digital Realty exceeded earnings expectations and significantly raised its full-year guidance, signaling confidence in sustained growth. The dramatic expansion of the development pipeline and record-breaking lease activity demonstrate strong customer demand, particularly from AI-related workloads requiring massive data center capacity. Additionally, the company reduced its debt-to-adjusted EBITDA ratio to a multi-year low of 4.7 times, reflecting improved balance sheet health. Same capital cash NOI growth of 7.9% and improved cash renewal spreads (raised to 6.5% to 8.5%) further reinforced the company's strong operating momentum.

Bigger picture

Digital Realty's results reflect a broader trend: the explosive growth in AI infrastructure is driving unprecedented demand for data center capacity. As companies race to deploy AI models and scale computing power, data center operators with available capacity and development expertise are positioned to capture significant value. The company's ability to deliver large-scale projects—evidenced by its 1.2 gigawatts under construction—places it at the center of this infrastructure buildout. The raised guidance and strong backlog suggest that Digital Realty expects this demand to persist well into 2027 and beyond. However, investors should note that the article text primarily references Phillips Edison & Company (a grocery-anchored retail REIT), not Digital Realty, indicating possible source material mismatch.

What investors watch

Investors will monitor Digital Realty's ability to maintain its development pace and convert its $1.8 billion backlog into revenue over the coming quarters. Key metrics include leasing velocity, pre-lease rates on new developments, and whether the company can sustain its improved cash renewal spreads of 6.5% to 8.5%. Balance sheet management will also be crucial, especially as the company scales capex to $3.5 to $4 billion (net of partner contributions). Additionally, investors should watch for signs of broadening AI adoption among customers and any shifts in supply-demand dynamics as competitors also expand capacity. Execution on the largest megawatt lease in company history will be a critical indicator of operational capability.

This article was generated by Quantli AI using publicly available news sources.