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Digital Realty Banks on London Tech Boom, Opens New Facility

Zacks Equity Research

Digital Realty Trust, Inc. DLR recently announced the launch of Cloud House, the company’s latest facility in its Digital Docklands campus of data centers in London's Docklands area. The move comes as part of the company’s effort to capitalize on the multibillion-pound technology boom that the city is set to experience in the coming years.

In fact, with growth in cloud computing, Internet of Things (IoT) and big data, and an increasing number of companies opting for third-party IT infrastructure, data-center REITs are likely to keep witnessing a boom market. Also, the estimated growth rates for the artificial intelligence, autonomous vehicle and virtual/augmented reality markets will remain robust over the next five to eight years. These factors are anticipated to give significant impetus for growth to data-center REITs, including Digital Realty, Equinix, Inc. EQIX, CyrusOne Inc. CONE and CoreSite Realty Corporation COR.

Specifically, Digital Realty is poised to benefit from the solid data-center demand, as well as accretive acquisitions and development efforts. In fact, in London, per the Digital Realty-commissioned study, "Digital Capitals Index:  London," four innovative technologies — Artificial Intelligence (AI), IoT, 5G and Blockchain — combined is currently on track to add £6.25 billion to London's economy this year. Specifically, IoT will likely contribute the most at 49% of the total.

Moreover, these new technologies are expected to contribute an estimated £24.29 billion to London's economy in 2029, which represents a whooping increase of £18.04 billion from the 2019 level. Robust growth is likely to come from 5G, with its economic contribution rising to £4.29 billion from £130 million, over the next decade. This is owing to 5G emerging as the foundation for deployment of several other innovative, data-led technologies.

Amid these, Digital Realty’s investment in growing its platform in the Digital Docklands in London comes as a strategic fit. This highly-connected campus is building up its capability to support the AI, IoT, 5G and Blockchain boom. Nevertheless, the company faces intense competition in the industry. Amid this, aggressive pricing pressure will also likely persist in the upcoming period. Furthermore, the company has a substantial debt burden.

Digital Realty currently carries a Zacks Rank #3 (Hold). In the past six months, shares of the company have outperformed the industry. While the stock has rallied 10.8%, the industry has gained 7.5% during this period. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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