Digital Realty Trust's Mixed AI Exposure: Is It Still a Buy in 2026?

Digital Realty Trust (DLR) has emerged as a focal point in the data center sector, with its AI-driven growth strategy attracting both optimism and skepticism. As the global demand for AI infrastructure accelerates, the company's $6.4 billion under-construction portfolio and $919 million lease backlog position it to capitalize on long-term tailwinds. However, recent analyst downgrades, regional demand constraints, and valuation debates have created a complex investment landscape. This article dissects the interplay between bullish growth indicators and bearish risks to assess whether DLR remains a compelling buy in 2026.

Bullish Growth Drivers: AI and Infrastructure Momentum

Digital Realty's strategic alignment with AI and cloud computing trends is a cornerstone of its growth narrative. Goldman Sachs has initiated coverage with a positive outlook, citing the company's development pipeline and institutional interest in AI infrastructure as key catalysts. Analysts project core Funds From Operations (FFO) to rise to $7.37 in 2026 and $7.86 in 2027, driven by mid- to high-single-digit revenue. The company's robust liquidity-$7 billion in corporate funds and $15 billion in joint venture access-further underscores its ability to scale operations.

Expansion in key markets like Charlotte and Atlanta is another growth lever. Digital Realty has secured 48 acres in Charlotte and 100 acres in Atlanta for high-density data centers, with over half of 2024 lease bookings tied to AI projects. Partnerships with NVIDIA to advance liquid cooling and energy-efficient designs also highlight its commitment to sustainable AI infrastructure. These initiatives align with the sector's "power is the new real estate" mantra, as operators race to secure power and grid capacity ahead of deployment.

Bearish Concerns: Valuation Disputes and Execution Risks

Despite these positives, DLR faces valuation skepticism. A bearish narrative estimates a fair value of $110.45 per share, suggesting the stock is overvalued by 40.9% due to risks like rising interest costs, competition, and potential overbuilding in key markets. Conversely, a DCF analysis implies an intrinsic value of $234.35, indicating a 36.9% undervaluation. These divergent views reflect uncertainty about the company's ability to monetize its AI-related backlog.

The risk of overbuilding is particularly acute in markets like Charlotte, where 48 data centers are already operational, and 22 more are planned or under construction. This concentration could strain local energy grids and trigger regulatory or community pushback, as seen in Charlotte's public debates. Similarly, Atlanta's data center vacancy rate has plummeted to 1.6%, creating a tight supply environment that could delay project timelines and inflate costs.

Regional Demand Challenges: Energy Constraints and Market Dynamics

Charlotte and Atlanta, two of Digital Realty's key expansion markets, exemplify the sector's dual-edged sword. In Charlotte, the proposed 400-megawatt data center campus in west Charlotte has sparked concerns about grid strain, with critics warning that such projects could double the region's energy demand. An average 100-megawatt data center consumes as much energy as 75,000 homes and 2 million liters of water daily.

Atlanta, meanwhile, faces its own hurdles. While the city added 969.4 megawatts of capacity in H1 2025, power sourcing and delivery timelines are now critical bottlenecks. Digital Realty's recent sales of non-core data centers in Atlanta-fetching $65 million and $90 million in gross proceeds-reflect the company's focus on optimizing its portfolio amid resource constraints. However, the CBRE report notes that 74.3% of U.S. data center capacity under construction is already preleased, intensifying competition for power.

Conclusion: Balancing Optimism and Caution

Digital Realty's AI exposure presents a compelling case for long-term growth, supported by a robust development pipeline, strategic partnerships, and strong liquidity. However, the company's valuation remains contentious, and regional challenges in Charlotte and Atlanta highlight the risks of overbuilding and energy constraints. For investors, the key lies in assessing whether Digital Realty can navigate these headwinds while maintaining its execution momentum.

In 2026, DLR's success will hinge on its ability to balance aggressive expansion with sustainable practices, secure power infrastructure ahead of demand, and demonstrate consistent monetization of its AI-related backlog. While the bull case remains intact, the bearish risks-particularly in over-saturated markets-warrant careful scrutiny. For now, DLR appears to be a speculative buy, best suited for investors with a high tolerance for volatility and a long-term horizon.