Digital Realty (DLR) Q1 2026 Earnings Transcript

DLR’s print is less about a one-quarter earnings beat than a multi-year capacity lock-up. The key second-order effect is that the company is now converting scarcity in power-constrained metros into longer-duration cash flow with embedded inflation protection: the mix shift toward inference, enterprise interconnect, and 15-year hyperscale contracts makes the revenue stream materially stickier than the market likely assumes. The raised capex and backlog also imply that near-term FFO acceleration is being deliberately traded for a much larger 2027-28 visibility wedge, which should support a higher multiple if execution holds.

The competitive read-through is negative for smaller colo and less-connected regional operators. DLR is proving it can monetize both ends of the demand curve simultaneously — sub-megawatt enterprise and 100MW+ hyperscale — while also using private capital to de-risk growth, which raises the bar for anyone trying to compete purely on balance-sheet capacity. Suppliers of liquid cooling, electrical gear, and mission-critical construction labor remain the bottleneck winners, but they also create the most obvious margin risk if lead times or wages re-accelerate.

The main risk is not demand collapse; it is timing slippage. The market may have to re-rate the stock lower on the next 1-2 quarters if commencements lag bookings again, because the equity story is becoming more explicitly back-end loaded. A second-order bear case is that rising utility/interconnection complexity and community pushback inflate basis faster than market rents, compressing the spread between “headline demand” and actual delivered returns.

Contrarian angle: consensus may still be underestimating how much AI inference looks like enterprise connectivity, not just hyperscale GPU compute. If that’s right, the addressable market widens meaningfully into smaller committed blocks, which should improve utilization of legacy assets and increase renewal pricing power faster than the market models. The stock is likely less a ‘data center REIT’ and more a ‘scarcity infrastructure compounder’ now.