Investing.com -- BMO Capital Markets upgraded Prologis to Outperform from Market Perform on Thursday and lifted its price target to $162 from $137, highlighting the industrial real estate giant’s exposure to surging data center demand as both a developer and a landlord.

Analyst John Kim said Prologis has "considerable ability to benefit from data center demand," pointing to a secured and late-stage development pipeline of 3.7 gigawatts of leaseable capacity and data center suppliers now accounting for roughly 10% of the company’s new leasing volume.

Data center development starts rose sharply in Prologis’s pipeline during the first quarter, reaching $1.2 billion, or 69% of total starts. BMO estimates the net present value of the company’s 10-year, $23 billion data center development program at $5.3 billion, assuming 4.9 gigawatts of leaseable capacity. The broker nudged its net asset value estimate up to $138.65 per share from $136.68.

Beyond data centers, Kim also flagged early signs of recovery in Los Angeles, Prologis’s largest market. First-quarter absorption turned positive with resilient demand for Class A space, even as overall market fundamentals remain uneven.

"Investment activity is improving around modern, value-add assets, a setup we believe favors PLD given its higher Class A exposure," Kim wrote.

BMO lifted its 2026 and 2027 core funds from operations per share estimates, implying growth of roughly 6% and 9%. Kim attributed the acceleration to rising occupancy, wider re-leasing spreads, and growing contributions from strategic capital and the company’s Essentials business.

On the flip side, the analyst flagged Prologis’s valuation as a concern, noting the stock trades at 27.6 times next-twelve-month adjusted funds from operations — a 29% premium to the industrial REIT sector average and nearly 8% above data center REITs.

He also pointed out that the company’s embedded rent growth, or mark-to-market, has fallen to 17% from a peak of 68%, and is expected to erode further to around 8.6% by year-end.

Amazon’s shifting real estate strategy was also flagged as a headwind. The e-commerce giant now plans to own 67% of newly built assets, compared with just 5% of its existing portfolio, a trend BMO said is unlikely to recreate the leasing boom of 2020 and 2021.