On the morning of July 24, shares of Digital Realty Trust opened near $190 and never looked back, closing above $204 by the end of the session. A day earlier, the data center landlord had reported second-quarter numbers so far ahead of Wall Street's models that several analysts scrambled to reissue their price targets within hours.

The headline figure was core funds from operations, the REIT industry's preferred profitability measure, which came in at $2.65 per share against a consensus estimate of $1.98. Revenue landed at $1.9 billion, well past the $1.66 billion analysts had projected. For a company that had spent much of July drifting in the mid-$170s, the reaction was immediate: shares gained more than 13% intraday, with some trading desks logging moves as large as 14.65%.

What actually drove the beat

Digital Realty's business is renting out physical space, power, and network connections inside its data centers to cloud providers, enterprises, and increasingly, AI companies training and running large models. This quarter, that demand showed up in almost every operating metric. The company signed $108 million in new bookings within its zero-to-one-megawatt interconnection category, plus another $20.5 million in pure interconnection revenue, according to details shared on the earnings call. Renewal leases repriced at cash re-leasing spreads above 25%, and on a GAAP basis those spreads reached roughly 32%, both comfortably ahead of the company's own guidance range set earlier in the year.

Perhaps more telling than the quarter itself was the backlog: Digital Realty says it now holds $1.9 billion in signed-but-not-yet-commenced annualized base rent, a record for the company, alongside a development pipeline that has grown to 1.4 gigawatts under construction. That backlog matters because it gives investors a forward view of revenue that isn't dependent on new deals closing. It is already locked in.

Guidance gets a rare mid-year lift

Management didn't just celebrate the quarter, it raised the bar for the rest of 2026. The company lifted its full-year core FFO guidance to a range of $8.15 to $8.20 per share, excluding net promote income, up from the $8.00 to $8.10 range it had set back in April. That new figure sits above the $8.03 that FactSet-polled analysts had been modeling, meaning Digital Realty is now promising to outperform even the market's revised expectations. Executives framed the increase as implying double-digit core FFO growth for a second consecutive year, a claim that stands out in a REIT sector where mid-single-digit growth has historically been the norm.

Wall Street's response came fast. BTIG initiated coverage with a Buy rating and a $215 price target, while Guggenheim upgraded the stock from Neutral to Buy and set a $200 target, citing the company's footprint in markets where new data center capacity is now genuinely scarce. Average analyst price targets cluster near $219 to $220, which, even after Friday's rally, still sits above where the stock closed.

The power-cost trade-off nobody is ignoring

There is a wrinkle worth watching. Digital Realty joined Equinix and several major utilities in a recent commitment tied to the Trump administration's push to have AI infrastructure operators absorb more of the cost of new power generation, part of an effort to cap how much rising electricity demand from data centers spills over into household bills. That arrangement could compress margins at the edges of the business even as it lowers regulatory friction for future builds. For a company whose entire growth story depends on securing power in constrained grids, trading a little margin for a smoother permitting and construction path looks, on balance, like a reasonable bet.

It also underscores something the market has been slow to price in: data center growth is no longer just a leasing story, it is an energy-policy story, and companies that get ahead of that shift may end up with a durable advantage over rivals still negotiating power deals on a project-by-project basis.

Why this quarter matters beyond one stock

Digital Realty's results landed in the same week that chip stocks were sliding on fears that hyperscaler capital spending has gotten ahead of itself, and just after Alphabet's own earnings report raised its 2026 capex forecast to as much as $205 billion, a figure that rattled investors elsewhere in the market. Against that backdrop, Digital Realty's quarter reads less like a one-off surprise and more like confirmation that physical demand for data center space, the actual square footage, power, and interconnection that AI workloads require, remains unmet and expanding. Whether that demand can keep outrunning supply through 2027 is the question the stock's premium valuation, trading near 47 to 53 times earnings depending on the metric used, is now betting on.

The current market P/E of roughly 47 to 53 times reflects genuine confidence, but it also leaves little room for a slowdown. If AI training and inference workloads plateau even modestly, a company priced for uninterrupted double-digit growth has further to fall than one priced more conservatively. For now, though, Friday's close suggests investors are willing to keep paying up.

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*Sources cited in this article include Digital Realty Trust's Q2 2026 earnings release and management commentary as reported by Yahoo Finance, ChartMill.com, StocksToTrade, and GuruFocus, along with broader market context from CNBC and Bloomberg's July 23–24, 2026 market coverage. All figures reflect reporting available as of July 25, 2026.*