KeyBanc Capital Markets upgraded Digital Realty Trust to Buy from Hold, citing sustained demand for large power blocks and robust bookings in key metro markets. The firm expects Digital Realty's revenue to grow about 10% annually, with adjusted funds from operations (AFFO) per share rising roughly 9% yearly between 2025 and 2028. This upgrade reflects optimism about the data centre market, where concerns around oversupply are seen as premature due to power constraints supporting pricing and returns.

The market narrative around data centres has swung between an AI-driven super-cycle and fears of an AI bubble. KeyBanc noted that pricing power should remain firm for the next two to three years, supporting earnings growth for large, well-capitalised operators. This sentiment is bolstered by the gradual shift in AI workloads from training to inference, which is favourable for companies with strong retail colocation exposure and deep customer relationships.

Oversupply risks are more likely to emerge in tier-2 and tier-3 cities rather than in core markets where Digital Realty and its peers are concentrated. Additionally, KeyBanc expects an AFFO inflection point at Equinix in 2026, which it sees as a key catalyst for the stock. The brokerage also noted that AI training demand could increasingly shift outside the United States, potentially supporting growth in Digital Realty's European and Asia-Pacific businesses over 2026–27.

The upgrade underscores the ongoing strength in the data centre sector, driven by the rise of AI and cloud computing. Digital Realty's improved outlook reflects its strong position in key markets and its ability to capitalise on the growing demand for data centre services. Investors should watch for further developments in the data centre market, particularly the impact of AI workloads and the potential for international expansion.