Why Data Center REITs Like Digital Realty Are Positioned to Win the AI Infrastructure Race

The Real Opportunity Sits Below the Hype

Everyone’s talking about Nvidia (NASDAQ: NVDA) and its dominant position in artificial intelligence chips. With a 23,000% gain over the past decade, the stock has certainly captured investor imagination. But beneath all the chip manufacturer excitement lies a more stable, often overlooked opportunity: the physical infrastructure that actually houses AI computing power.

Digital Realty (NYSE: DLR), a real estate investment trust (REIT) specializing in data center properties, represents a different kind of play on the AI buildout—one with less volatility and more tangible cash generation potential.

The Chip Manufacturer’s Vulnerability

Nvidia’s valuation tells an important story. Trading at a price-to-earnings ratio of 53 times, the market has priced in years of flawless execution. That’s a precarious position.

Market history shows the same pattern repeatedly: when a sector captures this much investor enthusiasm, overexpansion inevitably follows. The demand surge that fueled Nvidia’s rise will eventually plateau. Once it does, investors who viewed the company as unstoppable will reverse course dramatically—regardless of whether Nvidia remains a solid business operator. Stock sentiment, not fundamentals alone, will drive the outcome.

The challenge is simple: if AI chip demand cools, Nvidia’s revenue contracts proportionally. There’s minimal room for disappointment in its current valuation.

Digital Realty’s Structural Advantage

Here’s where data centers enter the picture. Every GPU and processing system running Nvidia chips needs a physical home—specifically, a facility engineered to manage power, cooling, and connectivity at massive scale. That’s precisely what Digital Realty builds and operates.

The REIT’s advantage emerges during market corrections. While an AI infrastructure correction might reduce chip demand and crater Nvidia’s growth prospects, it won’t eliminate the data centers already built. In fact, historical precedent from the internet buildout suggests that overinvestment in infrastructure creates spare capacity, driving down usage costs and increasing demand for the hosting environments themselves.

Digital Realty currently operates over 300 data centers spread across North America, South America, Europe, Asia, and the Middle East. With more than 5,000 customers and geographic diversification as a shield, the company generates steady rental income regardless of chip demand cycles.

The expansion runway remains significant. Current operations support approximately 2.8 gigawatts of capacity, but the company owns sufficient land to construct an additional 4.3 gigawatts. Each new facility adds recurring revenue streams that persist through market cycles.

Valuation Trade-Offs

Wall Street hasn’t overlooked Digital Realty’s opportunity. The market has adjusted the REIT’s valuation accordingly, reflected in its 2.9% dividend yield—noticeably below the average REIT yield of 3.9%.

This premium pricing reflects realistic expectations: as an infrastructure beneficiary of AI expansion, Digital Realty captures growth during the boom while maintaining portfolio stability if enthusiasm contracts. It’s a measured exposure to the AI narrative without the all-or-nothing bet that Nvidia represents.

For income-focused investors seeking participation in AI infrastructure without extreme volatility, this REIT offers a reasonable balance between growth participation and defensive characteristics, supported by quarterly dividend payments that provide tangible returns independent of stock price appreciation.