Digital Realty: At the Forefront of Hyperscaler Data Center Demand, but Shares Overvalued

We have downgraded our moat rating for Digital Realty Trust to none from narrow. Although the firm has expanded into the co-location business, which we view as more differentiated than the wholesale data center business, wholesale still provides the most significant share of leasing revenue. We think the wholesale business is subject to less pricing power and will be challenged by the most prominent tech firms building their own data center capacity.