DLR Plummets 4.25% Amid Short Squeeze Fears and AI Infrastructure Surge – What’s Next?

Summary
• DLR trades at $152.06, down 4.25% from its $158.82 previous close
• Short interest hits 2.89% of float with a 5.91-day cover ratio
• Q3 2025 revenue hits $1.6B, 10% YoY growth driven by 50%+ AI workload bookings
• Sector peers like Fermi (FEMI) collapse 40% after funding setbacks

Digital Realty Trust (DLR) is in freefall, trading 4.25% below its previous close amid a perfect storm of short-squeeze risks and AI-driven infrastructure optimism. The stock’s intraday range of $151.51 to $159.58 highlights extreme volatility, fueled by rising short interest and a $1.6B Q3 revenue surge tied to AI demand. Meanwhile, sector jitters amplify the drama as rivals like Fermi crumble, testing DLR’s resilience as a dual-force play.

Short Squeeze Fears Collide with AI Infrastructure Optimism
DLR’s 4.25% intraday drop is a collision of short-term technical pressures and long-term AI-driven growth. Short interest has surged to 2.89% of the float, with a 5.91-day cover ratio—a level historically prone to self-reinforcing rallies. Yet, the stock’s 4.25% decline suggests short-covering hasn’t materialized yet, possibly due to broader market jitters. Meanwhile, Q3 2025 revenue of $1.6B—10% YoY growth, with 50%+ bookings tied to AI workloads—positions DLR as a critical player in the $934B 2030 AI infrastructure boom. The disconnect between short-term technicals and long-term fundamentals creates a volatile, asymmetric risk/reward profile.

Data Center REITs Reeling as Fermi’s Collapse Sparks Sector Jitters
DLR’s struggles mirror broader sector turbulence. Fermi (FEMI), a data center REIT, plummeted 40% after a $150M Texas project funding deal collapsed, exposing fragility in AI infrastructure bets. While DLR’s fundamentals remain robust—$1.6B in Q3 revenue and a $373M Schneider Electric power deal—Fermi’s nosedive underscores investor caution. Equinix (EQIX), the sector leader, fell 1.69%, reflecting a risk-off sentiment. DLR’s dual positioning as a short-squeeze candidate and AI infrastructure leader, however, offers a unique edge over peers.

Options Playbook: Capitalizing on DLR’s Volatility and AI-Driven Asymmetry
• 200-day MA: $165.31 (above) | RSI: 52.5 (neutral) | MACD: -1.54 (bearish) | Bollinger Bands: $154.76–$163.87
• DLR’s technicals suggest a short-term bearish trend within a long-term range. Key support at $154.76 (lower Bollinger) and resistance at $163.87 (upper Bollinger) define the trading range. A break below $154.76 could trigger further declines, while a rebound above $163.87 may reignite short-covering.

Top Options Contracts:
• DLR20251219P150 (Put):
- Strike: $150 | Expiry: 2025-12-19 | IV: 25.27% | Delta: -0.466 | Theta: -0.026 | Gamma: 0.0706 | Turnover: 31,559
- IV (Implied Volatility): Mid-range, reflecting moderate uncertainty
- Delta (-0.466): Sensitive to price drops, ideal for bearish bets
- Gamma (0.0706): High sensitivity to price swings, amplifying gains/losses
- Turnover (31,559): High liquidity ensures easy entry/exit
- Payoff (5% downside): $152.06 → $144.46 → $5.54 profit per contract
- Why it stands out: Balances leverage and liquidity, ideal for a 5% downside scenario.

• DLR20251219C152.5 (Call):
- Strike: $152.5 | Expiry: 2025-12-19 | IV: 31.89% | Delta: 0.3916 | Theta: -0.2468 | Gamma: 0.0541 | Turnover: 52,501
- IV (31.89%): Moderate, aligning with current volatility
- Delta (0.3916): Moderately sensitive to price rallies
- Theta (-0.2468): High time decay, favoring quick moves
- Turnover (52,501): High liquidity for aggressive plays
- Payoff (5% downside): $152.06 → $144.46 → $0 (no profit)
- Why it stands out: High liquidity and moderate delta for a potential rebound above $152.5.

Trading Setup: Aggressive bears should target DLR20251219P150 for a 5% downside play, while cautious bulls may test DLR20251219C152.5 for a rebound above $152.5. Watch for a breakdown below $154.76 or a breakout above $163.87 to confirm direction.

Backtest Digital Realty Trust Stock Performance
The backtest of Digital Realty Trust (DLR) after an intraday plunge of at least -4% from 2022 to the present shows favorable short-to-medium-term performance. The 3-Day win rate is 50%, the 10-Day win rate is 53.97%, and the 30-Day win rate is 56.49%, indicating a higher probability of positive returns in the immediate aftermath of such events. The maximum return during the backtest period was 1.80%, which occurred on day 59, suggesting that DLR tends to recover moderately well from significant daily declines.

DLR at a Crossroads: Short-Squeeze Catalyst or AI-Driven Recovery?
DLR’s 4.25% drop is a pivotal moment for investors. The stock’s short-squeeze potential—fueled by 2.89% short interest and a 5.91-day cover ratio—remains intact, but broader market jitters and sector weakness (EQIX -1.69%) add complexity. The AI infrastructure narrative—$1.6B in Q3 revenue and a $373M Schneider deal—provides a long-term floor. For now, watch key levels: a breakdown below $154.76 (lower Bollinger) could trigger further declines, while a rebound above $163.87 (upper Bollinger) may reignite short-covering. Action: Position for a 5% downside with DLR20251219P150 or test a rebound with DLR20251219C152.5. Monitor sector peers like EQIX for directional clues.