Digital Realty Stock Down 16% Annually Despite 13% Rise in Core FFO
## Market Performance vs. Operational Health
**Digital Realty Trust (DLR)** presents a case of significant divergence between market sentiment and fundamental performance. Over the last year, the company's stock has registered a 15.8% decline and is down 17.1% year-to-date, underperforming the **Real Estate Select Sector SPDR Fund (XLRE)**, which has gained 2.3% in the same period. In the past month alone, DLR shares have slipped nearly 12%. This negative stock performance contrasts sharply with the company's operational achievements. In the third quarter, Digital Realty reported a 13% year-over-year jump in its core Funds From Operations (FFO), a key metric for Real Estate Investment Trusts (REITs). This growth was fueled by the delivery of 51 megawatts (MW) of new data center capacity to meet strong market demand.
## Valuation Metrics Signal Uncertainty
A deeper analysis of Digital Realty's valuation reveals conflicting data, contributing to market uncertainty. On one hand, multiple Discounted Cash Flow (DCF) analyses consistently suggest the company is significantly undervalued. Figures from several assessments indicate a potential undervaluation between 32.2% and 33.1%. This model projects future cash flows and discounts them to arrive at a current value, suggesting long-term potential.
On the other hand, a look at the Price-to-Earnings (P/E) ratio presents a contrary view. With a P/E ratio of 39.7x, **Digital Realty** appears expensive when compared to its industry and peers. This traditional valuation metric suggests that the current share price is high relative to the company's earnings, which may deter value-oriented investors.
## Broader Industry Context
The robust demand driving **Digital Realty's** operational growth is part of a larger secular trend. According to a forecast by **McKinsey & Company**, global data center capacity required for non-AI workloads, such as cloud computing and enterprise digital transformation, is projected to expand from 38 gigawatts (GW) currently to 64 GW by 2030. This long-term demand forecast provides a bullish backdrop for the data center industry as a whole. As one of the largest data center REITs globally, **Digital Realty** is structurally positioned to capitalize on this sustained growth, even as its current stock valuation remains a subject of debate among investors.
