HSBC Says Buy Digital Realty at $240 — But With Shares Already Near the Target, How Much Upside Is Really Left?

Shares of Digital Realty Trust surged 6.8% to $213.76 after HSBC analyst Phani Kanumuri upgraded the data center landlord from Hold to Buy and lifted his price target from $210 to $240. The analyst noted the company has improved its bottom-line outlook over the past year , driven by relentless demand from AI and cloud customers. The upgrade extends a rally fueled by a record second quarter — but with the stock already within 12% of the new target, investors face a sharper question: is the easy money already made?

A Blowout Quarter Gave HSBC the Green Light

Digital Realty's total revenues of $1.9 billion represented an 18% sequential increase from Q1 and a 29% jump year-over-year.

Core FFO per share (excluding a one-time promote fee) hit $2.13, up from $1.87 a year ago. Those numbers, paired with rental rate increases on renewals of 25.4% on a cash basis , gave HSBC enough conviction to call for sustained double-digit earnings growth.

A $1.9 Billion Backlog Locks In Future Revenue

A record total backlog of $1.9 billion — representing 30% of in-place revenue — provides high visibility for double-digit growth through 2027 and 2028.

Commencements are scheduled to accelerate in the second half of 2026, with $635 million of annualized rent expected to start. That pipeline is essentially pre-sold revenue waiting to show up in future quarters, which is why HSBC now expects 12% annual growth in adjusted funds from operations per share from 2025 to 2028.

Heavy Spending and Debt Are the Trade-Off Growth this aggressive doesn't come free. Concerns remain over large development spending of $4.25–$4.75 billion and significant debt of $18.6 billion. The company is partly funding expansion by selling stock: year-to-date, Digital Realty has sold roughly 13.5 million shares under its ATM program for about $2.5 billion , diluting existing holders even as earnings grow.

Valuation Leaves a Thin Margin for Error At $213.76, the stock trades at roughly 26× the midpoint of 2026 Core FFO guidance of $8.15–$8.20 per share . HSBC's $240 target implies about 12% remaining upside — respectable, but only if the company keeps delivering at a record clip. The development pipeline of 1.4 gigawatts is 63% pre-leased with an 11.5% average expected stabilized yield , suggesting returns justify the capital — for now. Any softening in AI infrastructure spending could compress that math quickly.