Digital Realty Trust Inc.’s stock went up on Friday after JPMorgan Chase analysts raised their rating for the owners of data centers from neutral to outperform. They did this because they think demand for cloud and artificial intelligence (AI) will grow.
The price of Digital Realty Trust DLR, 2.31% went up by 2.7% after Richard Choe, an analyst at JPMorgan Chase, raised his price target on the stock by $25 to $175 a share and changed his rating from neutral to buy.
Choe said that since the company has free and planned capacity in northern Virginia and other places, its funds from operations per share (FFOS) should go up as long as people want to use its data centers.
“Investors have been upset that the company doesn’t have enough core funds from operations per share,” Choe said. “But we think 2025 will be a year of strong growth in revenue and adjusted earnings before interest, taxes, depreciation, and amortization.”
At the beginning of May, Digital Realty Trust reported the most bookings in its fiscal first quarter. They also said that renewal volume and pricing were “strong.”
Choe said, “Demand for data centers is strong, and the current price trend could last for many years.” “They said that half of their bookings for the last quarter were related to AI, and we expect the company to win more deals in the future.”
Also, Digital Realty raised about $1.6 billion in stock last month to pay off debt and fund more building.
Choe said, “Digital Realty Trust is in a good position with its global portfolio of high density purpose-built cloud data center portfolio and new development.”
He also said that overall demand for data centers is still expected to be strong.
Analysts at JPMorgan Chase think that the average demand for data centers around the world will be up to 70% higher than the supply. This is true even though the industry is having trouble building more data centers.
Choe said that the sector as a whole is limited by “lack of land, problems with zoning and permits, delays in power generation and transmission, higher equipment costs and longer delivery times, and higher labor costs on top of a higher cost of capital compared to a few years ago.”
Digital Realty Trust, based in Austin, Texas, ran more than 300 data centers in more than 50 cities in more than 25 countries at the last count.
In other news about Digital Realty Trust, Jefferies put the stock on its global best ideas list of 21 stocks on Thursday.
“Rents on the market have been going up for a year now. DLR’s achieved rents on new leases are up more than 80% since the low point almost two years ago,” Analysts at Jefferies said.
DRT stock is up 13.2% so far in 2024, less than the 15.2% rise in the S&P 500 SPX.
