Digital Realty posts $1.9bn quarter and record $2.5bn backlog

Digital Realty reported quarterly revenue of $1.9 billion, up 21 percent year over year, alongside a record $2.5 billion backlog that includes revenue through 2028. Shares fell slightly after earnings. The numbers are strong. The market reaction was not.

The data center real estate investment trust (REIT, a company that owns and leases income-producing property) posted record overall leasing activity and growth in its interconnection business, which sells direct physical connections between networks housed in its facilities.

What did the leasing figures show?

Total leasing for the quarter reached $855 million. Signings in the 0-1MW category, including interconnection, exceeded last quarter's record by 40 percent. Leasing above one megawatt totaled $689 million, which the company said was "driven by a new high watermark in pricing." Hyperscale bookings (large deployments by cloud and AI operators) also hit $689 million, another record.

CEO Andy Power said in an earnings call: "Demand was broad-based across geographies, customer segments and deployment types."

He added: "In addition to two sizable hyperscale leases signed in early July in Northern Virginia, leasing was strong in APAC and exceeded our prior regional record by more than 600 percent."

A 600 percent regional record is an outlier, not a baseline. Power did not break out which APAC markets drove the figure.

Who is signing the deals?

CFO Matt Mercier pointed to the mid-size segment as the quarter's standout. "This quarter, the 500kW-1MW subsegment was particularly strong, driven by large enterprise and service provider deployments," he said.

He also disclosed a single large customer deployment: "We also saw a large network architecture deployment by one of the leading AI labs across 15 of our sites in EMEA."

Mercier continued: "The sites serve as interconnection hubs, giving the customer direct private connectivity to cloud providers, network carriers and enterprise customers within each region."

The company did not name the AI lab. Fifteen sites across one region suggests a multi-year network build. The scale of the contract in dollar terms was not disclosed.

How much is Digital Realty building?

Development capital expenditure hit $1.5 billion for the quarter, bringing the year-to-date total to $3.3 billion.

The development pipeline stands at 1.5GW under construction, at a total expected cost of $22 billion. That works out to roughly $14.7 million per megawatt. The pipeline is 63 percent pre-leased, meaning more than a third of the capacity still lacks a committed tenant.

A 63 percent pre-lease level is solid by historical standards. It still leaves roughly $8 billion of construction cost exposed to future demand.

Why did shares fall?

The company raised its full-year guidance. Revenue grew 21 percent. Records fell across leasing, hyperscale bookings and backlog. Shares declined anyway, amid broader uncertainty in the AI data center market.

Concerns about neocloud debt (borrowing by smaller cloud providers financing GPU capacity) have pressured the sector. Power addressed the worry directly on CNBC.

"We have very little exposure, less than two percent, to some of the noise and names that people are worried about," Power said.

Less than two percent is a specific claim. The company did not publish the full counterparty list that would let investors verify it independently.

The gap between record fundamentals and a falling share price is the story here. Digital Realty says demand is broad, pricing is at a high watermark and construction is two-thirds pre-leased. The market is pricing in something the earnings release does not say.