AI momentum accelerates, execution remains the true test
- Q2 2026 brought a record $1.9 billion backlog and renewal rent spreads topping 25 percent.
- The 0 to 1 megawatt enterprise category set a third straight record with $108 million in bookings.
- Digital Realty acquired Columbia Capital to add more than $9 billion in fund commitments for future development.
- The active development pipeline has grown to 1,402 megawatts, testing the limits of supply chains.
- Finn scores are mixed because the growth is clear but the stock price leaves little room for delays.
Pricing power meets massive pipeline
Digital Realty is delivering on the AI buildout. The second quarter of 2026 showed extraordinary momentum. The company posted a record $1.9 billion total backlog and renewal rent spreads above 25 percent. That pricing power proves that supply is tight in key markets.
Growth is coming from both giant tech companies and smaller enterprise clients. The 0 to 1 megawatt interconnection business set a third straight quarterly record with $108 million in bookings. The company also signed two hyperscale leases for $410 million just after the quarter closed.
To manage a pipeline that has swelled to $20 billion and 1,402 megawatts, Digital Realty bought Columbia Capital. This adds huge private capital pools to help fund construction and generate new fees. The company also entered the Kansas City market with 600 megawatts of secured power to support future AI campuses.
The bear case focuses completely on execution. Building $20 billion of data centers on time is incredibly hard. Power, cooling parts, and skilled labor are all scarce. Moving into new markets adds complexity. If projects run late, returns will slip and the stock could suffer.
Renting power, space, and connections
Digital Realty is a real estate investment trust, which means it owns real estate and pays out much of its taxable income to shareholders. Its real estate is data centers. Customers rent space, power, cooling, and network connections so their servers can run safely.
The largest customers are cloud service providers and AI builders. Digital Realty also serves standard enterprises, which are companies that need smaller deployments tied to cloud and network partners.
The moat comes from scale and secured power. Digital Realty operates more than 300 data centers globally. It buys land and secures utility agreements years before customers need the power. This land bank is critical as electricity gets harder to find.
Funding is a key part of the model. Digital Realty forms joint ventures and buys capital managers like Columbia Capital to help pay for new sites. This protects the balance sheet by using partner money, but it means growth relies on outside capital staying available at fair terms.
What customers actually rent
Hyperscale data centers
Large cloud and AI customers lease big blocks of power and space. The company signed $410 million in hyperscale leases shortly after the second quarter of 2026 ended.
0 to 1 megawatt deployments
These smaller deals serve enterprises and mixed cloud users. This category set a third consecutive quarterly record in Q2 2026.
Interconnection
Customers pay to connect their systems to carriers, clouds, and business partners inside Digital Realty sites. These links make a data center stickier.
High-density colocation
Digital Realty is adding liquid-cooled space for GPU servers used in AI. This helps the company serve denser workloads than older data halls were built for.
Development land and power bank
The company holds land and utility agreements that can become future capacity. A recent example is securing 600 megawatts of power in Kansas City.
Capital partner vehicles
Buying Columbia Capital added massive fund commitments to help share the cost of large projects, producing a private-capital fee stream.
Where the rent comes from
This mix uses annualized rent by top metro area as of December 31, 2025, from the 2025 Form 10-K. Digital Realty reports more detail by geography than by customer type.
What could break the thesis
Power does not arrive
High impact · Medium oddsData centers cannot lease what they cannot power. AI servers use more electricity than older workloads, which raises the burden on utilities. If Digital Realty cannot secure enough power at the right cost, its land bank loses value.
The pipeline runs late or over budget
High impact · Medium oddsThe active pipeline has scaled to an enormous $20 billion and 1,402 megawatts. That creates a massive execution test. Delays, labor shortages, or equipment shortages could reduce yields and slow Core FFO growth.
Capital partners pull back or integration fails
High impact · Medium oddsThe company relies heavily on outside funds to build new sites. The Columbia Capital purchase adds more than $9 billion in fund commitments. If the integration struggles or capital markets tighten, growth could slow.
AI demand shifts to lower-return sites
Medium impact · Medium oddsAI training often runs in large, remote campuses where power is cheap, while AI inference needs lower latency near users. If most demand stays in remote training campuses, returns might be lower.
Price leaves no safety margin
Medium impact · High oddsThe business is accelerating, but the market knows data centers are tied to AI. Finn scores show a weak valuation, which means the stock needs clean execution to work well. A good company can still be a hard stock if expectations are too high.
In one breath
Is Digital Realty an AI stock?
Digital Realty is not an AI software company. It owns the data centers that AI systems need for power, cooling, and network access. Q2 2026 showed continued AI demand with record total backlogs.
How does Digital Realty make money?
It leases data center space, power, cooling, and connections to cloud providers, AI users, and enterprises. It also uses joint ventures and fund managers like Columbia Capital to help pay for new developments.
What is Core FFO?
Core FFO is a real estate cash flow measure that adjusts earnings for items like depreciation and certain one-time effects. Management raised 2026 Core FFO guidance again after a strong second quarter.
What is the biggest risk for Digital Realty?
The biggest risk is execution. Demand is strong, but Digital Realty must deliver a $20 billion development pipeline while power, labor, and equipment are tight globally.
