Is DLR Worth Buying as Growth Accelerates but Valuation Stays Rich?

Digital Realty Trust, Inc. DLR is benefiting from faster expected Core funds from operations (FFO) growth, rising revenue visibility and sustained demand from AI, cloud and enterprise customers. The growth case strengthened after management raised its 2026 Core FFO per share outlook, excluding net promote.

The trade-off is valuation. DLR commands premiums to its Zacks sub-industry and the S&P 500, while a larger development program increases the importance of timely project delivery and attractive returns.

DLR’s Growth Outlook Has Strengthened

Management raised 2026 Core FFO per share guidance, excluding net promote, to $8.15-$8.20 from $8.00-$8.10. The Zacks Consensus Estimate calls for 2026 sales growth of 16.3% and FFO per share growth of 13.7%, while the estimate for current-year earnings has risen 4.3% over the past four weeks.

Leasing supports that outlook. Digital Realty ended the second quarter with a record $1.9 billion backlog of annualized GAAP base rent at 100% share, while renewal rents rose 25.4% on a cash basis. Equinix, Inc. EQIX also reported 23% year-over-year growth in annualized gross bookings in the second quarter, underscoring broad demand for digital infrastructure. Iron Mountain Incorporated IRM said its data center, digital and asset lifecycle management growth businesses collectively grew more than 50% year over year in the same quarter, with data center leasing reaching 110 megawatts year to date.

Digital Realty Trades at a Premium Valuation

DLR trades at 21.84X forward 12-month earnings, above the 16.12X multiple for its Zacks sub-industry and the S&P 500’s 20.8X. That premium leaves less room for execution shortfalls if expected earnings growth or leasing conversion moderates.

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The stock’s 9.43X price-to-sales multiple also stands well above the sub-industry’s 5.31X. Investors are therefore paying for sustained growth, making backlog conversion, renewal pricing and development returns central to the valuation case.

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DLR’s Capital Program Raises Execution Stakes

Development capital expenditures, net of partner contributions, are projected at $4.25-$4.75 billion in 2026, up from the prior $3.50-$4.00 billion range. The company had about 1.4 gigawatts under construction at June 30, 2026, with an 11.5% average expected stabilized yield and 54% pre-leasing.

Digital Realty is also adding future capacity through large land purchases and acquisitions. Its roughly $475 million Kansas City land acquisition can support up to two gigawatts of utility power. The expanded pipeline lengthens the growth runway, but it also raises the stakes around project timing, pre-leasing and stabilized returns.

Digital Realty’s Balance Sheet Offers Flexibility

Net debt to Adjusted EBITDA remained at 4.7X at June 30, 2026, while fixed-charge coverage improved to 5.2X. As of July 29, 2026, Digital Realty also had roughly $3.6 billion of borrowings available under its revolving credit facilty.

Management estimated more than $12 billion of remaining private-capital capacity for hyperscale development. That funding flexibility can help support the larger capital program, although total debt of about $18.6 billion keeps financing discipline important.

DLR’s Mixed Scores Support a Cautious Stance

The improving earnings outlook and leasing visibility support the growth case, but the premium valuation and heavier development program argue against chasing the shares. The setup currently looks more balanced than decisively bullish.

DLR carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Its Growth Score of B points to favorable growth characteristics, while the Value Score of D signals a weaker valuation profile. The VGM Score of C is also mixed. Together, those readings support a hold-or-wait posture rather than a strong buy case at the current valuation.

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

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