Meet the Monster Stock that Continues to Crush the Market

Digital Realty Trust (DLR) has significantly outperformed the S&P 500 over the past decade and two decades, delivering nearly 275% and over 2,400% total returns, respectively, driven by its strategic expansion in the data center REIT sector. The company's growth has been fueled by acquisitions and joint ventures, positioning it to capitalize on the projected 22% compound annual growth in global data center capacity demand through 2030, particularly to support AI workloads. By securing partnerships with firms like Blackstone and Realty Income, Digital Realty is well-positioned to continue expanding its data center footprint and potentially deliver market-beating returns.

Analysis

Digital Realty Trust (DLR) has demonstrated significant historical outperformance, delivering a 275% total return over the past decade (14.1% annualized) and over 2,400% in the past 20 years (17.5% annualized), substantially exceeding the S&P 500's gains of 235% (12.9% annualized) and 640% (10.5% annualized) over the same periods. As a real estate investment trust (REIT) specializing in data centers, DLR operates over 300 facilities across more than 50 global metro areas, serving over 5,000 customers and holding a $61 billion equity market cap. This scale has been achieved through organic growth and strategic acquisitions, such as DuPont Fabros ($7.6 billion in 2017) and Interxion ($8.4 billion in 2019), alongside joint ventures like the one with Brookfield Infrastructure for Ascenty. These investments have fueled above-average revenue and earnings growth, supporting a robust 680.5% dividend increase over two decades. The outlook for DLR remains strong, driven by projected 22% compound annual growth in global data center capacity demand through 2030, largely due to AI and non-AI workloads, which McKinsey estimates will require nearly $7 trillion in capital investment. DLR is strategically positioned to capitalize on this trend, notably through capital partnerships such as a $7 billion joint venture with Blackstone and a build-to-suit JV with Realty Income, as well as its U.S. Hyperscale Data Center Fund aiming to raise $2.5 billion. These initiatives are designed to accelerate earnings growth by expanding its development pipeline beyond what internal funding alone could support, leveraging its operational expertise and land positions to meet the escalating demand for digital infrastructure, particularly driven by AI.

Key Decisions for Investors

• Investors should consider DLR's strong track record of outperformance and its strategic positioning to benefit from the secular growth in data center demand, particularly fueled by AI advancements.
• The company's use of joint ventures with partners like Blackstone and Realty Income to fund expansion mitigates capital expenditure burdens and could accelerate earnings growth, a factor to monitor for successful execution.
• While DLR's fundamentals and growth prospects appear robust, the article notes it was not among The Motley Fool Stock Advisor's recent top 10 picks, suggesting investors might weigh this against the company's positive outlook and consider broader market opportunities.
• Monitor global data center capacity demand, AI adoption rates, and the successful deployment of capital through DLR's joint venture strategies as key indicators of continued performance.