Digital Realty Trust (DLR) Stock

DLR is in a strong position to benefit from its extensive network of data centers as cloud computing, the Internet of Things, and Big Data continue to expand.

Digital Realty has performed well, but it is currently overvalued, trading at almost 29 times its P/AFFO, which is not sustainable due to its low growth forecasts. Even with high leasing and backlog activity, the company's occupancy rates are worrying, and its AFFO growth is falling short of expectations. I am changing my rating to "Hold" and reducing my shares, investing instead in American Tower and Prologis, which have better valuations and growth potential.

Accepting challenges and learning from failures helped me become a leading analyst on Seeking Alpha, where I specialize in fundamental analysis. My mentors, such as Chuck Carnevale, taught me that second-level thinking is essential for successful long-term investing, prioritizing earnings rather than feelings. Real Estate Investment Trusts (REITs), especially Realty Income, show great promise for 2025 because of their size, variety, and careful risk management.

In 2024, Artificial Intelligence is a major factor increasing the need for data centers such as Digital Realty Trust. While DLR has maintained steady funds from operations, it has not kept up with competitors in terms of net income growth, earnings per share growth, and return on equity. Although DLR has a stable credit rating and good credit quality, its common stock seems to be overpriced.

Strong demand for data centers and smart investments are likely to help DLR grow, even in a tough market with many competitors and a focus on specific assets.

Strong demand for data centers, a reliable group of tenants, and ongoing development projects are expected to benefit DLR.

AUSTIN, Texas, Nov. 6, 2024 /PRNewswire/ -- Digital Realty Trust, Inc. (NYSE: DLR), known as the biggest global provider of cloud and carrier-neutral data center, colocation, and interconnection services, has announced that its subsidiary, Digital Realty Trust, L.P. ("Digital Realty L.P.").

DLR has increased its investments in renewable energy, benefiting from low borrowing costs, which has enhanced its ESG outlook. The company's strong results for the third quarter of 2024 and its upgraded guidance for the full year have helped its stock perform better than the overall market. However, DLR's current valuation seems too high, exceeding both historical and sector averages, suggesting there is little room for safety.

DLR's funds from operations (FFO) per share for the third quarter matched expectations. However, high operating costs had a negative impact on the overall results.