Shares of Digital Realty DLR have risen 16.6% in the past three months, outperforming the industry’s 4.7% growth.

Amid robust demand for data centers, Digital Realty is poised for growth with decent leasing activity, a diverse tenant roster, accretive buyouts, development efforts and balance sheet strength.

Analysts seem bullish on this Zacks Rank #3 (Hold) company, with the Zacks Consensus Estimate for its 2025 funds from operations (FFO) per share revised upward marginally over the past week to $7.10.Zacks Investment Research

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Factors Behind DLR Stock’s Price Surge: Will the Trend Last?

With the growth in cloud computing, the Internet of Things and Big Data, and an increasing number of companies opting for third-party IT infrastructure, data-center REITs like Digital Realty are experiencing a booming market. In the first quarter of 2025, the company signed $242.3 million of new leases, of which $172.1 million fell into the greater than 1-megawatt category, $54.1 million of 0-1 megawatt leases and $14.6 million of interconnection bookings.

Digital Realty also has a high-quality, diversified customer base comprising tenants from cloud, content, information technology, network, other enterprise and financial industries. The majority of tenants are investment-grade, and numerous customers use multiple locations across the portfolio. This assures stable revenue generation for the company.

Digital Realty is expected to ride on its growth curve, backed by strategic investments in land, infrastructure and acquisitions. In March 2025, Digital Realty forayed into the Indonesian market through a 50-50 joint venture with Bersama Digital Infrastructure Asia (BDIA), enhancing the company's presence in the rapidly growing Asia-Pacific region. Such expansionary efforts will augur future revenue growth for the company.

DLR is making efforts to enhance its portfolio by carrying out various development and redevelopment activities. The company has a robust development pipeline, which seems encouraging. As of March 31, 2025, it had 9.5 million square feet of space under active development and 5.1 million square feet of space held for future development.

Digital Realty has a solid balance sheet with ample liquidity. The company exited the first quarter of 2025 with cash and cash equivalents of $2.32 billion. Its net debt-to-adjusted EBITDA was 5.1X, while its fixed charge coverage was 4.9X as of the end of the first quarter of 2025. In addition, Digital Realty currently enjoys BBB (Stable Outlook), BBB (Stable Outlook) and Baa2 (Stable Outlook) credit ratings from Fitch, S&P and Moody's, respectively, which provide it with favorable access to the debt market and lower borrowing costs.

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Key Risks for DLR Stock

However, competition from other industry players is likely to lead to aggressive pricing pressure and weigh on Digital Realty’s prospects. A substantial debt burden and high interest rates add to its woes.

Stocks to Consider

Some better-ranked stocks from the broader REIT sector are Welltower WELL and Cousins Properties CUZ, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Welltower’s 2025 FFO per share has moved marginally northward to $4.99 over the past month.

The consensus estimate for Cousins Properties’ 2025 FFO per share has increased 1.8% to $2.79 over the past two months.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.

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Cousins Properties Incorporated (CUZ):Free Stock Analysis Report

Digital Realty Trust, Inc. (DLR):Free Stock Analysis Report

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This article originally published on Zacks Investment Research (zacks.com).

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