We recently published a list of 10 AI News and Analyst Ratings You Should Not Miss. Since Digital Realty Trust Inc (NYSE:DLR) ranks 9th on the list, it deserves a deeper look.
While everyone is talking about rate cuts, some analysts are questioning whether it was necessary even to start cutting rates at this time. Latest data released on Tuesday showed retail sales in the US rose while Wall Street analysts were expecting to see a decline. Oksana Aronov, JPMorgan Asset Management head of market strategy for alternative fixed income, said while talking to CNBC that rate cuts are not even warranted as she thinks there are no signs of broader weakening except for the labor market.
Aronov said cutting rates would “loosen” the financial conditions further. The analyst said that about 14 months ago, everyone was looking at the CPI that was clocking in at 3% and expected the metric to fall to 2%. But even after all these months, CPI year over year is at 2.9%. She said that the Fed should move carefully and the 2% inflation target would be “elusive” because fiscal spending will continue to rise.
AI investors are however looking beyond this debate and already positioning to pile into more growth stocks amid the beginning of the rate-cut cycle.
For this article, we picked 10 buzzing AI stocks and discussed the latest news around them.
With each stock we have mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close-up view of a technician installing a server in the data center facility, representing the reliable services provided by the company.
Digital Realty Trust Inc (NYSE:DLR)
Number of Hedge Fund Investors: 44
Victoria Greene, founding partner & chief investment officer at G Squared Private Wealth, said while talking to CNBC in a latest program that Digital Realty Trust Inc (NYSE:DLR) has a strong backlog and runway.
The analyst said the company is positioned to rise in the market that is growing because of AI and secular growth catalysts like hyper-scaler Cloud.
Citi Research recently published a list of stocks that it believes are suitable for a barbell strategy to balance exposure to Mag. 7 stocks. Digital Realty is part of the list.
These are buy-rated, mid-cap stocks with at least 15% expected total return and positive 2024 EPS per consensus estimates.
What makes Digital Realty Trust Inc (NYSE:DLR) a promising AI and data center stock?
Digital Realty Trust Inc (NYSE:DLR) is a data center REIT with about 300 data centers across 25 countries. With the demand for data centers off the charts, DLR is positioned well to benefit from the boom. It has over 20 years of experience, a customer base of large cloud providers, and a well-established supply chain. Its long-term partnership with a utility provider in Northern Virginia has allowed it to navigate energy bottlenecks, with potential backup options like natural gas turbines.
AI-related hosting has seen a significant price jump, with costs rising from $80-$90 per kilowatt per month to $150-$160 per kilowatt per month—an 82% increase. This should lead to higher profits, contributing to improved net income and funds from operations (FFO).
However, Digital Realty Trust Inc (NYSE:DLR) is running a highly capital-intensive business that is burning a lot of cash. Digital Realty’s operating expenses jumped to $1.35 billion during the second quarter from $1.18 billion in the previous quarter and $1.21 billion in the prior-year quarter.
As investors flock to data center stocks, Digital Realty Trust Inc (NYSE:DLR) has become overvalued. The stock is trading at a forward P/E of 123, compared with the industry median of about 40. It trades 106 times 2025 earnings estimates set by Wall Street analysts.
Baron Real Estate Fund stated the following regarding Digital Realty Trust, Inc. (NYSE:DLR) in its Q2 2024 investor letter:
“In the most recent quarter, the shares of data center REIT Digital Realty Trust, Inc. (NYSE:DLR) continued to appreciate due to record quarterly new leasing results, strong pricing power on new and renewal leases, an improved capital structure, and an evolving AI demand growth opportunity for its data center facilities.
Digital Realty is a global provider of data center services to enterprises, cloud service providers, network providers, financial services, media, and other customers. Our team traveled to Digital Realty’s headquarters in Texas earlier this year to meet with CEO Andy Power. We remain optimistic about Digital Realty’s continued ability to perform well due to improving growth and pricing power, the company’s existing and newly developed data center capacity in supply constrained markets, its fully secured future pipeline of power and key infrastructure components, and management’s greater focus on delivering bottom-line growth while balancing investing for the future…” (Click here to read the full text)
Overall, Digital Realty Trust Inc (NYSE:DLR) ranks 9th on Insider Monkey’s list titled 10 AI News and Analyst Ratings You Should Not Miss. While we acknowledge the potential of Digital Realty Trust Inc (NYSE:DLR), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an DLR stock that is more promising than AI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.