DLR Option Play: Riding the AI Wave with Data Centers?

Digital Realty Trust is a global provider of data center, colocation, and interconnection solutions. The company's 'PlatformDIGITAL' offering provides a platform for scaling digital business and managing data gravity challenges. Digital Realty serves a diverse customer base across various industry verticals, including cloud and IT service providers, content providers, network and communications providers, and enterprises. The company differentiates itself by offering a global data center platform with over 300 facilities, providing secure, highly connected environments for data exchange, processing, and storage. Its 'Pervasive Data Center Architecture (PDx)' solution methodology aims to scale digital business and efficiently manage data gravity issues, offering solutions for service providers and enterprises to support their IT architecture requirements.

The collaboration between Digital Realty and NVIDIA to design and deploy AI infrastructure is a significant positive catalyst for DLR in the short term. This partnership directly links DLR to the rapidly growing AI sector, potentially attracting new clients seeking robust infrastructure for AI applications. The Manassas campus deployment suggests an immediate, tangible project, rather than a vague future plan, enhancing the credibility of the deal. While the second article mentioning DLR as a 'second-level' AI trade provides some support, the NVIDIA collaboration is the primary driver of the positive outlook. Given the current market enthusiasm for AI-related stocks, this news is likely to generate increased investor interest and upward price pressure on DLR over the next 1-2 weeks. The absence of any countervailing negative news or macro events further strengthens this bullish sentiment. Therefore, a score significantly above neutral is justified, reflecting the high probability of a positive directional impact.

DLR's technical outlook is mildly bearish. The recent price action shows a decline, closing at $168.30 on November 4th, which is below the 21-day EMA of $172.70 and the 50-day SMA of $171.29. The 200-day SMA is $165.31. Momentum indicators suggest further weakness. The RSI is at 48.90, indicating neutral to bearish sentiment, and the MACD at -0.07 is below its signal line, suggesting a downward trend. The stochastic oscillator shows the %K line at 30.69 and the %D line at 25.66, suggesting the stock is not yet oversold, leaving room for more potential declines. The ADX is at 15.96, indicating a weak trend. The recent ROC20 is negative at -2.83, which confirms a downtrend. The price is currently testing the lower Bollinger Band, which could act as support, but a breakdown below this level could lead to further declines. Overall, the technical indicators suggest a continuation of the recent downtrend in the short to medium term.

Digital Realty's MD&A reveals a period of growth and strategic financial maneuvering. Total operating revenues increased by $146.0 million (10.2%) for the three months ended September 30, 2025, and $358.9 million (8.7%) for the nine-month period, compared to 2024. This growth was fueled by increased leasing and renewals, particularly in the stabilized portfolio, which saw a revenue increase of $73.5 million for the quarter. However, property level operating expenses also rose by $53.9 million (8.2%) for the quarter, impacting profitability. The company strategically divested assets, generating a $20.3 million and $501.8 million increase in 'gain on disposition of properties' for the three and nine month periods, respectively, including a gain of approximately $873 million from contributing assets to the Fund. 'Net cash provided by operating activities' increased by $201.2 million, attributable to revenue growth and decreased interest expense. The company also actively manages its capital structure, issuing new debt (e.g., '€850 million aggregate principal amount of 3.875% Guaranteed Notes due 2035') and repaying older debt (e.g., 'repaid €650 million in aggregate principal amount of our 0.625% senior notes due 2025'). Looking ahead, Digital Realty expects to incur $1.2 billion to $1.7 billion of capital expenditures for the remainder of 2025, reflecting ongoing investment in development projects.

Digital Realty's Q2 2025 earnings call projects a moderately bullish outlook, driven by strong performance and raised guidance. Jordan Sadler highlighted key takeaways, including '$177 million of new bookings' and record performance in the 0-1 megawatt plus interconnection product set with '$90 million of bookings.' Andy Power emphasized the company's strategic focus on long-term sustainable growth in core FFO per share, stating, 'we are starting to see the fruits of our labor.' Core FFO surged to a record '$1.87 per share,' a 13% increase year-over-year. Matt Mercier announced increased guidance for 2025, expecting to 'exit the year with significant momentum and a sizable backlog,' raising the core FFO guidance range by $0.10 to $7.15 to $7.25 per share and revenue and adjusted EBITDA guidance ranges by $100 million and $75 million, respectively. Renewal leases saw a blended 7.3% increase on a cash basis. The company's U.S. Hyperscale Data Center Fund has secured over '$3 billion of LP equity commitments,' bolstering its strategic position. While demand is strong, particularly in North America, management acknowledged AI deployments lag in EMEA and APAC, presenting potential future growth catalysts. Management's tone throughout the call was optimistic, reflecting confidence in the company's strategic direction and market position.

DLR's financial performance over the past several quarters presents a somewhat bearish picture. Revenue has fluctuated, starting at $1,331.1M in Q1 2024 and reaching $1,577.2M in Q3 2025, indicating inconsistent growth. The gross profit ratio has been volatile, starting at 0.55 in Q1 2024, peaking at 0.56 in Q1 2025, before declining to 0.23 in Q3 2025, suggesting pressure on profitability. Operating cash flow data is only available for some quarters, but the latest available figure from Q2 2025 shows a positive operating cash flow of $641.2M. A significant concern is the fluctuating but overall increasing total debt, which increased from $18,378M in Q1 2024 to $19,750M in Q2 2025, then decreased to $1,285M in Q3 2025, raising concerns about long-term solvency and financial risk. The inconsistent revenue growth, declining gross profit ratio, and debt levels suggest potential challenges in the near term.

The company presents a moderately bullish investment profile based on its key metrics and financial ratios. Revenue has shown positive growth, indicating a healthy demand for its products or services. The gross margin has remained relatively stable, suggesting efficient cost management. The Return on Equity (ROE) indicates a solid return for shareholders. The Price-to-Earnings (P/E) ratio suggests the company is appropriately valued by the market. The debt-to-equity ratio has seen a decrease, showcasing the company's improved financial leverage. The current ratio signifies the company's strong ability to meet its short-term obligations. Overall, the company demonstrates a stable and growing business model with a healthy balance sheet, making it a moderately attractive investment for the next 6-12 months.