How AI Demand Misalignment Is Reshaping Digital Realty Trust's Growth Outlook and REIT Valuation Prospects

The artificial intelligence revolution is reshaping the global economy, but its impact on infrastructure markets is uneven and complex. For Digital Realty Trust (DLR), a leader in data center real estate, the surge in AI demand has created both opportunities and risks. While the company has positioned itself as a key player in AI-ready infrastructure, the broader industry faces a critical misalignment between capital allocation and demand trends. This analysis examines how Digital Realty navigates these challenges-and what it means for its valuation and long-term prospects.

The AI-Driven Infrastructure Bottleneck

The global data center industry is experiencing a "dual surge" in demand, driven by AI workloads and hyperscale cloud expansion. According to the DC Byte 2025 Global Data Centre Index, AI-related take-up grew by 30% year-on-year in 2025, with power access now the primary bottleneck for new developments. This imbalance has created a "supply versus demand" crisis: while demand for high-density, AI-optimized facilities is soaring, construction timelines are delayed by grid constraints and permitting hurdles.

Digital Realty has responded aggressively. The company has allocated $9 billion to its development pipeline and secured $3 billion in equity commitments for its U.S. Hyperscale Data Center Fund. Its focus on AI-ready infrastructure includes advanced cooling systems (e.g., liquid cooling and chilled water loops) and strategic land acquisitions in high-growth regions like Atlanta, Dallas, and India. These moves align with the industry's need for facilities capable of handling AI's power and thermal demands.

Capital Allocation Efficiency: A Double-Edged Sword

Digital Realty's capital allocation strategy appears well-calibrated to current trends. As of late 2025, 79% of its 499 MW development pipeline in the Americas was already leased, reflecting strong demand from hyperscalers and enterprises. This pre-leased model minimizes the risk of capital misallocation, a critical advantage in an industry where construction delays are common. The company's partnership with NVIDIA to develop next-generation AI infrastructure in Northern Virginia further underscores its ability to secure high-margin, long-term contracts.

However, the broader market's capital allocation efficiency remains questionable. Industry-wide, development pipelines are increasingly evaluated by "delivery probability" rather than announced capacity, as operators grapple with energy grid limitations. For Digital Realty, this means its competitive edge lies in its ability to secure power and permits faster than peers-a capability reinforced by its global infrastructure expertise and strategic partnerships.

Financial Performance and Valuation Metrics

Digital Realty's financials reflect the strength of its AI-focused strategy. In Q3 2025, the company reported total bookings of $162 million, with 41% of that figure ($65 million) coming from the 0–1 megawatt category, a segment critical for AI and cloud tenants. Its 2025 Core FFO per share guidance was raised to $7.32–$7.38, driven by a $852 million backlog and 8.0% cash rental rate increases on renewals. These metrics highlight the company's pricing power in a tightening market.

Valuation indicators also suggest undervaluation. With a net debt-to-EBITDA ratio of 5.92x and a debt-to-equity ratio of 0.86x, Digital Realty maintains a conservative capital structure. Analysts project a fair value of $199.22 per share, implying significant upside from current levels. This optimism is supported by the company's 15% share of leased U.S. data center power-a stark contrast to Equinix's 4.9%-and its leadership in AI-capable infrastructure.

Market Positioning and Regional Dynamics

Digital Realty's expansion into high-growth regions like the Asia-Pacific and Southeastern U.S. positions it to capture emerging demand. In Northern Virginia, a key AI hub, the company's campus supports NVIDIA's AI Factory Research Center, leveraging its high-density power capabilities and advanced cooling systems. Meanwhile, its Atlanta and Charlotte developments tap into the Southeast's growing digital economy, where vacancy rates have dropped to 1.6% in H1 2025.

Yet challenges persist. In international markets like Indonesia, where Digital Realty has a joint venture, supply capacity data for 2025 remains undisclosed, raising questions about execution risks. The company's success in these regions will depend on its ability to replicate its U.S. model of pre-leased developments and strategic partnerships.

Conclusion: A REIT Poised for AI-Driven Growth

Digital Realty Trust's alignment with AI demand trends-through targeted capital allocation, technological innovation, and strategic market expansion-positions it as a standout in the data center REIT sector. While industry-wide supply constraints persist, the company's pre-leased pipeline, pricing power, and financial discipline mitigate the risks of capital misallocation. Analysts' favorable valuation assessments and the company's raised 2025 guidance further reinforce its growth trajectory.

However, investors must remain vigilant. The AI infrastructure boom is still in its early stages, and Digital Realty's long-term success will hinge on its ability to maintain its technological edge and navigate regional execution risks. For now, though, the REIT's market positioning and financial performance suggest it is well-equipped to capitalize on the AI era's transformative potential.