Digital Realty Trust (DLR) has just reaffirmed its quarterly dividend at US$1.22 per share, while also pointing to higher 2026 Core FFO guidance and a record leasing backlog tied to AI and cloud demand.

The reaffirmed dividend and higher 2026 Core FFO guidance arrive alongside clear momentum in Digital Realty Trust’s share price, with a 27.11% year to date share price return and a 78.54% three year total shareholder return. This suggests that recent enthusiasm has built on a longer rerating rather than a short term spike.

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After such a strong run in Digital Realty Trust, the core issue now is simple. Are you looking at a stock where the AI and cloud upside is still being priced in, or one where most of the valuation work is already done?

Most Popular Narrative: 9.9% Undervalued

Against a last close of $197.06, the most followed narrative assigns Digital Realty Trust a fair value of $218.72, which frames the current enthusiasm around AI driven demand.

Digital Realty's record backlog of leases, which have not yet commenced, indicates strong future revenue potential and earnings growth due to steady demand for data center capacity, particularly from AI and cloud service providers.

The successful formation of Digital Realty's first U.S. hyperscale fund is expected to fuel future growth with up to $10 billion in investments, leading to enhanced revenue and returns through fees, highlighting its significant potential impact on long-term earnings sustainability.

Want to see what is baked into that $218.72 fair value for Digital Realty Trust? The narrative leans heavily on compound revenue expectations and a rich future earnings multiple that would usually be associated with fast growing software stocks rather than a REIT. It examines how the growth, margin and discount rate assumptions fit together to support that premium pricing story.

Result: Fair Value of $218.72 (UNDERVALUED)

However, there is still a risk that rapid U.S. data center build out runs ahead of demand and that higher financing costs weigh on Digital Realty Trust’s returns.

Another View on Digital Realty Trust’s Valuation

The first narrative argues that Digital Realty Trust is undervalued by 9.9% using a fair value of $218.72. On the other hand, its current P/E of 96.2x is far above the fair ratio of 42x, the peer average of 53.3x, and the North American Specialized REITs average of 25.6x. That gap points to meaningful valuation risk if sentiment cools.

For investors weighing these conflicting signals, it may help to see how the earnings multiple stacks up against the underlying fundamentals in more detail, starting with the See what the numbers say about this price — find out in our valuation breakdown..

Next Steps

With both optimism and concern threaded through the Digital Realty Trust story, this is a good time to look at the full picture for yourself. To weigh the upside and the downside in one place, start with the 3 key rewards and 2 important warning signs.

Looking for more investment ideas beyond Digital Realty Trust?

Do not stop with Digital Realty Trust. Fresh ideas can shift your whole portfolio, so take a few minutes now to scan other opportunities before they move.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.