Digital Realty Trust (NYSE:DLR) Q4 2025 Earnings call February 05, 2026 05:00 PM ET Speaker4Afternoon and welcome to the Digital Realty Fourth Quarter 2025 earnings call. Please note that this event is being recorded. During today's presentation, all participants will be in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Callers will be limited to one question, and we will aim to conclude at the top of the hour. I would now like to turn the call over to Jordan ...

Financial Data and Key Metrics Changes - The company reported revenue of $213.4 billion, a 12% increase year-over-year, excluding foreign exchange impacts [5][29] - Operating income was $25 billion, which included special charges that reduced operating income by $2.4 billion [29] - Trailing twelve-month free cash flow was $11.2 billion, reflecting strong growth [5] Business Line Data and Key Metrics Changes - AWS revenue grew to $35.6 billion, with a growth rate of 24% year-over-year, marking the fastest growth in 13 quarters [6][35] - The North America segment revenue was $127.1 billion, up 10% year-over-year, while the international segment revenue was $50.7 billion, up 11% year-over-year [30] - The company saw a 12% increase in worldwide paid units, the highest quarterly growth rate in 2025 [30] Market Data and Key Metrics Changes - The company expanded its grocery business significantly, achieving over $150 billion in gross sales, making it a large grocer [19] - Same-day delivery for Prime members increased by nearly 70% year-over-year, with significant adoption of perishable grocery services [20][33] - Advertising revenue grew 22% year-over-year, reaching $21.3 billion in the quarter [24] Company Strategy and Development Direction - The company is focusing on AI, chips, and quick commerce as key growth areas, with strong demand already observed [5][6] - Investments in AWS and custom silicon are expected to drive long-term returns on invested capital [41][44] - The company plans to expand its grocery offerings and improve delivery speeds, aiming to enhance customer experience [19][33] Management's Comments on Operating Environment and Future Outlook - Management highlighted the unpredictability of results due to various external factors, including economic conditions and customer demand [4] - The company remains optimistic about the future, particularly in AI and cloud services, expecting continued strong demand [44][46] - Management emphasized the importance of customer experience and operational efficiency as key drivers for long-term value creation [39] Other Important Information - The company plans to invest approximately $200 billion in capital expenditures, predominantly in AWS [17] - The launch of Amazon Leo aims to provide connectivity in underserved areas, with significant interest from enterprise customers [27][37] Q&A Session Summary Question: Insights on long-term return on invested capital - Management discussed the strong demand for AI services and the expected long-term returns from current investments, emphasizing the importance of operational efficiencies [41][42][44] Question: Update on Project Rainier and financial guardrails - Management expressed excitement about the growth of Trainium and its applications, noting that the project is progressing well and has significant interest [51][52][56] Question: Changes in the AI market and relationships with companies like OpenAI - Management described the AI market as barbelled, with significant opportunities in enterprise production workloads and expressed optimism about extending partnerships with AI companies [59][60][64] Question: Retail business efficiency and investment areas - Management highlighted ongoing investments in expanding selection and improving delivery speeds while also identifying areas for cost efficiencies [73][75]

Investor Presentation February 5, 2026 NASDAQ/TSX: OTEX Safe Harbor and IP Statement This presentation contains forward-looking statements or information (forward-looking statements) within the meaning of the Private Securities Litigation Reform Act of 1995, Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the Exchange Act), Section 27A of the U.S. Securities Act of 1933, as amended, and other applicable securities laws of the United States and Canada, and is subject to the safe harbors ...

Core Insights - The technology sector is experiencing a significant selloff, particularly in software stocks, which have dropped 15% this week and 29% from their all-time highs in September [3][4] - Alphabet, the parent company of Google, has announced a capital expenditure forecast of $185 billion for the fiscal year, significantly higher than the market's expectation of around $120 billion, leading to a decline in its stock price [6][30] - Bitcoin has fallen below $70,000 for the first time since late 2024, reflecting broader negative momentum in the cryptocurrency market [2][46] Group 1: Market Trends - The NASDAQ is down 1.4%, marking its lowest point since November, with a general risk-off sentiment affecting various asset classes [2][5] - Software stocks are reported to be oversold, with 70% of them classified as such, indicating extreme market conditions [4] - The S&P 500 and Dow Jones Industrial Average are both down 1.2%, showing a broad market decline [5] Group 2: Company Earnings and Forecasts - Qualcomm's stock has dropped nearly 8% following a lackluster revenue forecast of $11 billion, raising concerns about memory supply constraints affecting handset demand [7][74] - Qualcomm reported record revenue of $1.24 billion and nearly $740 million in royalties, reflecting a 27% year-on-year increase, with strong demand in the data center business [9][10] - Alphabet's cloud business grew by 48%, exceeding investor expectations, but concerns over high capital expenditures are causing investor anxiety [29][31] Group 3: Cryptocurrency Market - Bitcoin's price has decreased by approximately 45% from its October high, with the cryptocurrency market facing fundamental issues and a loss of faith among investors [6][47][50] - The decline in Bitcoin is attributed to broader market pressures, including the performance of other asset classes like gold and silver [46][50] - The cryptocurrency exchange Gemini plans to cut about 25% of its workforce, indicating distress within the industry [6] Group 4: Investment Opportunities - The selloff in software loans has pushed nearly $18 billion into distressed territory, presenting potential investment opportunities for discerning investors [51][52] - Companies that can withstand or benefit from AI advancements are seen as more resilient, while those lagging in AI adoption may face revenue stress [54][56] - The market is witnessing a shift in focus towards companies with strong fundamentals and growth potential in the AI space [52][56]

When investors want to profit from the AI boom, they generally gravitate toward chipmakers like Nvidia (NASDAQ: NVDA) or software companies like Palantir (NASDAQ: PLTR). They probably pay less attention to real estate investment trusts (REITs), which are buying up data centers, renting out the space, and paying out most of that income as dividends. One of the largest data center REITs is Digital Realty (NYSE: DLR), which operates more than 300 data centers across over 50 metropolitan areas. It serves ove ...

Company Overview - Proactive provides fast, accessible, informative, and actionable business and finance news content to a global investment audience [2] - The news team operates from key finance and investing hubs including London, New York, Toronto, Vancouver, Sydney, and Perth [2] Market Focus - Proactive specializes in medium and small-cap markets while also covering blue-chip companies, commodities, and broader investment stories [3] - The content includes insights across various sectors such as biotech and pharma, mining and natural resources, battery metals, oil and gas, crypto, and emerging digital and EV technologies [3] Technology Utilization - Proactive is a forward-looking company that adopts technology enthusiastically to enhance workflows [4] - The company utilizes automation and software tools, including generative AI, while ensuring all content is edited and authored by humans [5]

Core Insights - Microsoft (MSFT) shares dropped approximately 14% following the release of its Q2 fiscal 2026 earnings, despite beating revenue and earnings estimates with non-GAAP EPS of $4.14 and revenue of $81.3 billion, reflecting a 17% year-over-year growth [1][7] Financial Performance - The cloud infrastructure segment remains a key growth driver, with Azure and other cloud services growing 39% in constant currency, although this is a slight deceleration from the previous quarter's 40% growth [3] - Microsoft Cloud revenues surpassed $50 billion for the first time, reaching $51.5 billion with a 26% year-over-year growth, but gross margins compressed to just over 68%, the narrowest level in three years due to heavy AI infrastructure investments [3][7] - Commercial bookings surged to 230%, up from 112% in the previous quarter, with remaining performance obligations reaching $625 billion, indicating strong enterprise demand for Microsoft's offerings [4][7] Segment Performance - The Productivity and Business Processes segment generated $34.1 billion in revenues, reflecting a 16% growth, driven by the adoption of Microsoft 365 services [4] - The More Personal Computing division faced challenges, with revenues declining approximately 3% to $14.25 billion, and gaming revenues falling 9.5% due to an unspecified impairment charge [5] Future Guidance - For fiscal Q3, Microsoft projects revenues between $80.65 billion and $81.75 billion, implying growth of approximately 15% to 17%, with Azure revenue growth expected at 37% to 38% in constant currency [6][7] - Operating margins are anticipated to decline slightly year-over-year, but management raised full fiscal year 2026 operating margin expectations [7] AI Integration and Competitive Landscape - Microsoft is expanding AI capabilities across its product portfolio, with recent enhancements in Excel and Outlook, although monetization of these features is still in early stages [9] - Microsoft trades at a forward price-to-sales ratio of 8.67, a premium compared to the industry average of 7.03, reflecting the market's recognition of its cloud position [10] - Over the past six months, Microsoft shares have lost 21.1%, underperforming competitors like Alphabet and Amazon, which have seen significant returns [13] Investment Considerations - The investment case for Microsoft includes strong competitive positioning in enterprise cloud, a massive backlog of contracted future revenues, and leadership in generative AI applications [17] - However, elevated capital expenditure requirements, compressed margins, and capacity constraints create uncertainty regarding near-term financial performance [17]

Industry Overview - Cloud computing is a crucial and rapidly growing sector of the digital economy, projected to grow from $752 billion in 2024 to over $2.3 trillion by 2030, with a compound annual growth rate exceeding 20% [2] - The rise of generative AI is driving demand for cloud capacity, as training large AI models requires significant computing power and data storage, making cloud adoption essential for businesses [3] Investment Perspective - Cloud companies benefit from attractive business models, often operating on subscription or SaaS models that provide recurring, high-margin revenue streams [4] - High switching costs create competitive advantages, as enterprises are often locked into specific cloud ecosystems, making it costly to switch providers [4] - The long-term fundamentals of the cloud sector remain strong, supported by trends in AI, digital transformation, and recurring revenue, despite fluctuations in valuations and market sentiment [4] Stock Selection Methodology - A list of 13 high-growth cloud stocks was compiled based on revenue growth exceeding 35% over the past five years, ranked by revenue growth [7] - Hedge fund sentiment was included for each stock, sourced from Insider Monkey's database as of Q3 2025, indicating interest from institutional investors [7][8] Company Highlights Braze, Inc. (NASDAQ:BRZE) - Reported Q3 fiscal 2026 revenue of $191 million, reflecting a 25.5% year-over-year growth and a 6% sequential increase, with 106 net new customers added in the quarter [11][12] - Despite a cautious valuation sentiment in the software sector, Braze's consistent revenue growth and improving customer acquisition trends position it well in the customer engagement landscape [12] Datadog, Inc. (NASDAQ:DDOG) - Achieved a 3-year revenue growth of 37.67% and reported record new logo annualized bookings, more than doubling year over year, indicating strong demand for its observability platform [13][14] - Datadog's expanding product suite and strong cross-sell capabilities position it favorably to capture a larger share of customer spending, even amid macroeconomic pressures [15][16]

Financial Data and Key Metrics Changes - Overall revenue for Q4 2025 was $2 billion, a decrease of 1% year-over-year, primarily due to a 4% decline in product revenue, with on-prem software down 18% as clients shifted to cloud solutions [18][21] - Total gross profit increased by 9%, with gross margin expanding to 23.4%, an increase of 220 basis points [19][21] - Adjusted diluted earnings per share were $2.96, up 11% year-over-year, while adjusted earnings from operations grew by 13% [17][21] Business Line Data and Key Metrics Changes - Cloud gross profit was $138 million, an increase of 11%, driven by growth in SaaS and Infrastructure as a Service [19] - Core services gross profit grew by 16%, reaching $90 million, supported by acquisitions and organic growth [19][21] - Hardware gross profit increased by 1%, with hardware revenue growing for the fourth consecutive quarter [18][19] Market Data and Key Metrics Changes - EMEA region saw a gross profit increase of 30%, driven by demand in UAE and Saudi Arabia [19] - The company reported strong growth in core services across EMEA, contributing to overall performance [18][19] Company Strategy and Development Direction - The company is focused on cloud modernization, security, and AI adoption, positioning itself as a leading AI-first solutions integrator [18] - Recent acquisitions, including Inspire11 and Sekuro, have strengthened technical expertise in data, AI, and cybersecurity, enhancing cross-sell opportunities [16][21] - The strategy emphasizes simplifying complexity for clients and delivering measurable outcomes through integrated solutions [18] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism for 2026, anticipating subdued spending across the industry, particularly from corporate and large enterprise clients [17][21] - The macro environment remains complex, with ongoing supply chain dynamics and memory pricing impacting client investments [17][21] - The company expects to continue investing in cloud and AI to capture emerging opportunities [18] Other Important Information - The company increased its share repurchase authorization by $150 million, totaling $299 million at year-end [23] - Total debt at the end of Q4 was approximately $1.4 billion, up from $900 million a year ago, primarily due to acquisitions and share repurchases [23][24] - The company has filed over 200 patent applications globally, with more than 70 patents issued to date, covering innovations in AI and machine learning [15] Q&A Session Summary Question: Guidance for 2026 and IT budgets - Management indicated a cautious approach to 2026 guidance, emphasizing potential disruptions and the need to balance internal ambitions with market realities [33][34] - IT budgets for large enterprises are expected to remain subdued, with a focus on preserving funds for AI transition [36][37] Question: Impact of partner program changes - The gross profit impact from partner program changes was approximately $70 million, with a tail effect expected into 2026 [44][46] - Management noted that the pivot to focus on mid-market clients is complete, but some financial impacts will persist [46][48] Question: AI data center investments - Management highlighted the complexity of AI-optimized data center solutions and the potential for broader enterprise adoption as companies consider cost structures [52][53] - The company is well-positioned to support clients in navigating the evolving landscape of AI infrastructure [53][56] Question: Memory cost and supply chain disruptions - Memory price increases are expected to impact PC prices by 10% to 25%, with potential volume declines due to elasticity [57][58] - The company plans to pass along cost increases while managing elasticity to mitigate impacts on demand [58][59]

Financial Data and Key Metrics Changes - Overall revenue for Q4 2025 was $2 billion, a decrease of 1% year-over-year, primarily due to a 4% decline in product revenue, with on-prem software down 18% as clients shifted to cloud solutions [17][21] - Total gross profit increased by 9%, with gross margin expanding to 23.4%, an increase of 220 basis points [19][21] - Adjusted diluted earnings per share were $2.96, up 11%, while adjusted earnings from operations grew by 13% [17][21] Business Line Data and Key Metrics Changes - Cloud gross profit was $138 million, an increase of 11%, driven by growth in SaaS and Infrastructure as a Service [19] - Core services gross profit grew by 16% to $90 million, supported by acquisitions and organic growth [19] - Hardware gross profit increased by 1%, with hardware revenue up 2%, marking the fourth consecutive quarter of growth [19] Market Data and Key Metrics Changes - EMEA region saw a gross profit increase of 30%, driven by demand in UAE and Saudi Arabia [19] - The company reported strong growth in its core services business across all geographies, contributing to overall performance [8][19] Company Strategy and Development Direction - The company aims to simplify complexity for clients and deliver measurable outcomes through integrated solutions, focusing on cloud modernization, security, and AI adoption [18] - Recent acquisitions, including Inspire11 and Sekuro, are expected to enhance technical expertise and cross-sell opportunities [16][21] - The company is positioning itself as a leading AI-first solutions integrator, with a strong emphasis on technology consulting capabilities [9][18] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism for 2026, anticipating subdued spending across the industry, particularly from corporate and large enterprise clients [17][18] - The macro environment remains complex, with ongoing supply chain dynamics and memory pricing impacting client investments [17][18] - The company expects to continue investing in cloud and AI areas to capture emerging opportunities [18] Other Important Information - The company increased its share repurchase authorization by $150 million, bringing the total to $299 million at year-end [23] - Total debt at the end of Q4 was approximately $1.4 billion, up from $900 million a year ago, primarily due to acquisitions and share repurchases [23][24] - The company has filed over 200 patent applications globally, with more than 70 patents issued to date, covering innovations in AI and machine learning [15] Q&A Session Summary Question: Guidance for 2026 and IT budgets - Management discussed the cautious approach to 2026 guidance, emphasizing the impact of market uncertainties and past performance on expectations [31][33] - IT budgets for large enterprises are expected to remain subdued, with a focus on preserving funds for AI transition [36][37] Question: Partner program changes impact - The impact of partner program changes was quantified at $70 million for the year, with expectations of a tail effect into 2026 [40][44] Question: AI data center opportunities - Management highlighted the complexity and potential for AI data center investments, indicating a significant growth vector for the business [51][53] Question: Memory cost and supply chain disruptions - Expectations of 10% to 25% increases in PC prices due to memory costs were discussed, along with the potential impact on customer spending [57][58]