Digital Realty Trust, Inc. (DLR) is scheduled to report fourth quarter 2025 results on February 5, 2026, but one analyst is already tempering expectations about the data center operator's ability to capitalize on the AI boom.

BofA Securities analyst Michael Funk downgraded Digital Realty from Buy to Neutral and cut the price target from $210 to $170, citing competitive headwinds in the race for AI infrastructure.

Here's the problem: Digital Realty has been losing out on the biggest AI-driven data center deals. The largest 2025 development projects went to emerging markets outside the company's traditional footprint, and Funk expects this trend to accelerate in 2026 as AI projects surpass 1 gigawatt in scale.

When you're building data centers for AI workloads at that magnitude, speed matters enormously. Customers want infrastructure yesterday, and they're increasingly willing to look beyond established players to get it faster. That puts Digital Realty, with its focus on primary markets and existing development schedule, at a disadvantage.

Funk warns that growth constraints from the company's scale and development timeline create downside risk to fourth-quarter leasing forecasts. Meanwhile, historically negative REIT sentiment limits any potential multiple expansion.

The silver lining? Strong demand and supply constraints support a positive 2026 outlook for the data center sector overall. Digital Realty's growth will just depend heavily on development timelines, lease renewals, and whether its market focus aligns with where customers actually want to build.

Funk raised EPS estimates to $7.34 for 2025 (from $7.28), $7.92 for 2026 (from $7.85), and $8.64 for 2027 (from $8.58).

DLR Price Action: Digital Realty Trust shares traded down 1.67% at $152.28 on Thursday.