Digital Realty Raises 2025 Outlook Following High AI Data Center Demand

Digital Realty has revised its growth guidance to double-digit Funds From Operations (FFO) expansion for 2025 and beyond, citing accelerating demand for AI-ready infrastructure. The change from its previous high single-digit growth forecast follows a period of record leasing activity and a buildup of pending revenue.

"Our business remains 'sticky' and 'steady Eddie,' with a land-and-expand model that proves resilient regardless of broader economic volatility," management noted during the Bank of America conference.

Backlog and Operational Metrics

The company's growth is anchored by a pipeline of future revenue. As of June 30, 2024, Digital Realty reported $2.3 billion in signed but not yet commenced leases. This figure represents 32% of the firm's $5 billion in-place data center revenue base, providing visibility into future cash flows.

Demand is concentrated in high-performance computing. AI-related workloads now account for 21% of the company's zero-to-one plus interconnection segment, a shift from the 10-11% historical average. This surge reflects the move toward specialized facilities capable of supporting the high power density requirements of modern generative AI models.

Operational Risks and Expansion Constraints

The company highlighted operational headwinds that could impact the pace of data center development. Management identified two primary constraints:

• Labor Shortages: A scarcity of specialized skilled labor, particularly master electricians and plumbers, is hindering the construction timeline for new facilities.
• Regulatory Pushback: Increasing local and regional scrutiny regarding the environmental footprint and power consumption of large-scale data centers is creating hurdles for project approvals.

What Is at Stake

For investors and stakeholders, the shift to double-digit FFO growth signals that Digital Realty is capturing the capital expenditure wave generated by hyperscalers and AI developers. The company's ability to convert its $2.3 billion lease backlog into operational revenue will be the primary determinant of its performance in the coming fiscal years. The firm continues to lean on its land-and-expand strategy, which prioritizes securing real estate in key connectivity hubs to maintain its competitive position against other global data center operators.