Shares of Digital Realty (DLR +0.92%) have underwhelmed in 2025. They're currently down over 5% on the year, woefully underperforming the S&P 500's more than 15% gain.
Despite the recent underperformance, shares of the data center company could soar in 2026 and beyond. Here are two catalysts that could power its surge.
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Robust near-term growth
Digital Realty's stock price has slumped this year, even though the real estate investment trust (REIT) is having a fantastic year. Its core funds from operations (FFO) jumped 13% in the third quarter, powered by robust demand for capacity in its data centers. Rental rates on renewal leases signed during the quarter were up 8% compared to prior rates.
It's also signing new leases at strong rates to support its development program. The data center REIT delivered 51 megawatts (MW) of new capacity during the third quarter. It now has over 300 data centers across 50 global metro areas with nearly 2.9 gigawatts (GW) of in-place operating capacity.
NYSE: DLR
Key Data Points
That strong showing enabled the REIT to increase its full-year outlook once again. It now anticipates that its core FFO per share will be in the range of $7.32 to $7.38 per share, up from its original guidance range of $7.00 to $7.10 per share.
Digital Realty expects to "begin 2026 with significant momentum and a sizable backlog, which extends our runway for long-term growth," commented CFO Matt Mercier on the third-quarter conference call. The company concluded the period with 730 MW of new capacity under construction, most of which it anticipates completing next year. It has already leased most of this capacity, putting the company on track to experience a meaningful uptick in revenue next year. Overall, the REIT expects leases representing $165 million of annualized revenue to commence in the fourth quarter and another $555 million to begin throughout next year. This continued brisk growth could help drive up its stock price in the next year.
The capacity to expand
Digital Realty is in a strong position to continue growing rapidly in the coming years. According to a forecast by McKinsey & Company, by 2030, the world will require 64 GW of data center capacity to support non-AI workloads (e.g., cloud computing and enterprise digital transformation), up from 38 GW currently. Meanwhile, demand for AI workloads is on track to surge from 44 GW to 156 GW. Combined, these catalysts will require a 3.5 times increase in data center capacity over the next five years.
The REIT is in a strong position to capitalize on this megatrend, thanks to its extensive land and power portfolio, as well as access to capital. The company estimates that it has the land and access to power to support about 5 GW of future capacity expansion.
Meanwhile, the company has developed the capital resources to fund a significant future capacity buildout. The data center REIT has approximately $7 billion in corporate liquidity that it can utilize to internally fund expansion projects. It's continually replenishing its liquidity by selling non-core assets to recycle capital into new investments. It generated $90 million from non-core data center sales during the third quarter and another $33 million early in the fourth quarter.
Additionally, the company has formed multiple joint ventures in recent years to fund development projects, led by its $7 billion partnership with Blackstone. The company also launched its first U.S. Hyperscale Data Center Fund, which has over $3 billion of equity commitments. These sources provide it with an additional $15 billion of capital to fund new investments.
The company's combination of expansion capacity and capital availability puts it in a strong position to continue expanding its portfolio. It could grow at a robust rate over the next five years as it plays a key role in supporting the continued growth of cloud computing and the AI boom.
Robust growth ahead
Robust demand for data center capacity has Digital Realty growing briskly. It has a lot of momentum heading into 2026, thanks to the large backlog of new capacity that should come online in the coming months. Meanwhile, it has the land and capital to continue growing its capacity in the coming years. This strong growth profile positions Digital Realty to potentially deliver robust total returns for investors in 2026 and beyond.
