Digital Realty just posted a record-breaking quarter, and while everyone's buzzing about their AI-driven acceleration, there's a deeper story hidden within the transcript <a href="https://seekingalpha.com/symbol/DLR/transcripts" alt="Digital Realty Q1 2024 Earnings Call Transcript">Digital Realty Q1 2024 Earnings Call Transcript</a>, a subtle shift with potentially massive implications.

AI isn't just boosting Digital Realty's revenue; it's reshaping their entire customer base. The transcript reveals a quiet revolution: the rise of the "private AI" customer. While hyperscalers are grabbing headlines with their massive AI deployments, a new breed of customer is emerging - enterprises deploying significant, albeit smaller, private AI infrastructure within Digital Realty's facilities.

This might seem like a minor detail, but consider this: traditional enterprise customers have historically anchored Digital Realty's 0 to 1 megawatt segment. This segment, often characterized by lower power densities and less demanding requirements, has exhibited steady, predictable growth. AI, however, is a power-hungry beast. These new "private AI" customers are pushing the boundaries of power density within this segment, driving higher rents and potentially accelerating growth beyond anyone's expectations.

The transcript offers clues to this shift. CEO Andy Power highlights wins with enterprise AI customers like a Fortune 500 AI component maker and a Global 2000 leader in material sciences, both deploying AI infrastructure in Digital Realty's facilities. CTO Chris Sharp emphasizes the importance of placing AI algorithms in proximity to data, suggesting a growing need for private AI deployments within Digital Realty's data-rich environments.

The Hypothesis: A New Engine of Growth

Here's where the hypothesis gets interesting: What if this influx of "private AI" customers is driving a fundamental shift in the 0 to 1 megawatt segment? Could we see this segment, historically a bastion of stability, transform into a new engine of accelerated growth, fueled by the insatiable power demands of AI?

The numbers offer a glimpse of this potential. While the overall mark-to-market for Digital Realty's portfolio is already positive, the greatest potential upside lies within the greater than 1 megawatt category, where current rates are significantly below market. If the 0 to 1 megawatt segment begins to exhibit similar dynamics, fueled by increasing power density and AI demand, Digital Realty could be sitting on a gold mine of untapped growth potential.

Digital Realty: The Ultimate Prospector

Think about it: Digital Realty boasts a network of over 300 data centers strategically positioned in key markets worldwide. They're already the go-to provider for hyperscalers seeking massive AI deployments. Now, imagine a parallel surge in demand from enterprises deploying private AI infrastructure within the same facilities. The combined force of these two customer segments could drive a sustained period of outperformance for Digital Realty, far exceeding current analyst expectations.

This quiet revolution is happening right under our noses. While the market fixates on hyperscalers, Digital Realty is quietly building a second AI engine within their portfolio, an engine that could drive accelerated growth for years to come. The AI gold rush is on, and Digital Realty is poised to become the ultimate prospector.

Leasing Trends at Digital Realty

The following chart shows the leasing volume of Digital Realty over the past four quarters. As you can see the latest quarter showed record leasing volume driven by AI.

"Fun Fact: Did you know that Digital Realty's data centers are so massive that they use enough electricity to power entire cities? It's a testament to the sheer scale and critical importance of their infrastructure in today's digital world."