Digital Realty Trust's (DLR) stock has potential for further gains due to continued strong demand for data center services and the likelihood of higher rents for these services, UBS Securities said in a report Tuesday.

"After years of stable to declining [funds from operations per share], we expect 5% growth in [2025], accelerating to 7% in [2026] and 10% in [2027]," UBS said, adding that this outlook is driven by stronger renewal spreads, higher yields from new developments, and sustained demand in artificial intelligence and hyperscale.

The company is poised to benefit from stronger negotiating leverage in the current supply/demand environment, as demonstrated by package deals in 2024 that accelerated renewals in exchange for new capacity, the report said.

The brokerage expects renewal spreads to grow in 2025, boosting FFO/share by 2% to 3% with further growth to 4% to 5% in 2026, supported by low vacancy rates in key North American markets and continued rent increases, UBS said.

UBS has upgraded Digital Realty Trust to buy from neutral and raised its price target to $205 from $147.

Price: 181.48, Change: +1.88, Percent Change: +1.04