BMO Capital reiterates Digital Realty Trust stock rating with positive AI outlook

BMO Capital has reiterated an Outperform rating and $195 price target on Digital Realty Trust (DLR), identifying it as a top data center pick despite recent sector pressure from higher interest rates. This positive outlook is underpinned by strong data center fundamentals, robust demand, and the significant tailwind of AI-driven hyperscaler infrastructure investments, projected to approach $550 billion by 2026. The firm projects high single-digit Core FFO growth for DLR, a view reinforced by the company's Q2 2025 earnings which significantly surpassed expectations with an EPS surprise of 617.07%, and continued analyst confidence from firms like Citizens JMP.

Analysis

Despite sector-wide pressure from higher interest rates, which have driven data center stocks down 3.7% in the past month, analyst outlook on Digital Realty Trust (DLR) is notably bullish. BMO Capital reiterated an Outperform rating with a $195 price target, identifying DLR as its top pick, while Citizens JMP maintained a Market Outperform rating with a $220 target. This confidence is substantiated by DLR's exceptional second-quarter 2025 performance, where it reported an EPS of $2.94, a 617.07% surprise above the $0.41 consensus, and revenue of $1.49 billion that also beat forecasts. The positive thesis rests on strong underlying fundamentals, including robust demand and pricing power, which are significantly amplified by the AI-driven infrastructure build-out by hyperscalers, with related investments projected to approach $550 billion by 2026. This secular tailwind supports analyst projections for high single-digit Core FFO growth for DLR, with BMO forecasting 7.7% in 2025 and 7.9% in 2026. The company's financial stability is further underscored by its 22-year track record of uninterrupted dividend payments.

Key Decisions for Investors

• Given the strong analyst consensus, significant earnings outperformance, and powerful AI-driven demand tailwinds, investors could view DLR as a core holding for exposure to the data center sector.
• While fundamentals are strong, investors should monitor the impact of interest rate movements, as this was cited as the primary headwind for the sector and remains a key risk for capital-intensive REITs.
• With the stock trading well below analyst targets of $195 and $220, any sector-related pullbacks could present a strategic buying opportunity for long-term investors aiming to capitalize on the projected multi-year growth in Core FFO and sustained pricing power.