Morgan Stanley: VNET Group's Ulanqab May Electricity Consumption Up 8.6% MoM, Maintains Overweight

Overview

This research report primarily tracks the operational data of VNET Group Inc's data centers in the Ulanqab region. The core conclusion is that total electricity consumption for data centers in this area reached 644 GWh in May 2026, an 8.6% month-over-month increase, demonstrating that customer move-ins remain robust. Based on this positive signal and the company's fundamentals, Morgan Stanley maintains its 'Overweight' rating on VNET Group, setting the target price at $16.

Core views

In terms of operational data, total electricity consumption at Ulanqab data centers was recorded at 644 GWh in May 2026, representing an 8.6% month-over-month increase compared to April. Morgan Stanley estimates that, excluding the impact of Power Usage Effectiveness (PUE) changes, total power utilization increased by 68 MW month-over-month in May. This growth trend indicates that data center demand in the region continues to be released, with customer move-in progress meeting or exceeding expectations. Regarding industry position and share, data center electricity consumption currently accounts for 6.7% of the total social electricity consumption in the Ulanqab region, reflecting the increasingly important role of the data center industry in the local energy consumption structure. In terms of valuation and rating, the report maintains an 'Overweight' rating for VNET Group with a target price of $16, offering approximately 79% upside from the current stock price of $8.95. Financial forecasts show that earnings per share (EPS) are expected to be RMB 0.98 in 2026 and RMB 2.25 in 2027, with revenue and EBITDA showing steady growth trends.

Analysis framework

The institution adopted an analysis approach combining 'high-frequency operational data tracking + DCF valuation'. First, by tracking regional electricity consumption data released by local governments, it uses this as a high-frequency proxy indicator for data center industry prosperity and company capacity utilization. The month-over-month increase in electricity consumption directly confirms the continuity of 'customer move-ins', the core driving factor. Secondly, at the valuation level, the report uses a 10-year discounted cash flow (DCF) model as the baseline case. It sets the Weighted Average Cost of Capital (WACC) at 8.7% (with a debt cost of 4.0%, equity cost of 14.0%, and debt weight of 50%), and assumes a terminal growth rate of 3%. This method, combining micro-operational data verification with macro-cash flow discounting, aims to more accurately capture the company's intrinsic value.

Methodology notes

• Valuation MethodDCF Cash Flow Discounting

  DCF Cash Flow Discounting Model

  Evaluates the company's intrinsic value by discounting expected future free cash flows to their present value using a specific discount rate (WACC). The report sets WACC at 8.7% and a terminal growth rate of 3% to calculate the target price for VNET Group.

• Industry/Industrial Analysis FrameworkVolume-price decomposition

  Electricity Consumption as a Proxy for Capacity Utilization

  In the data center industry, electricity consumption is highly correlated with server rack density (capacity utilization). By tracking month-over-month changes in total regional electricity consumption, one can indirectly infer the pace of customer move-ins and business growth, which is a common high-frequency tracking method.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• VNET Group Inc (VNET.US)

  Direct beneficiary; its Ulanqab data center operational data directly reflects the company's business status.

  Strengths

  Robust occupancy in the Ulanqab region with significant month-over-month growth in electricity consumption; attractive valuation (implying 79% upside).

  Risks

  Reduction in capital expenditure by hyperscale cloud service providers; delays in capacity delivery; weak sales execution.

Key data

• Total Electricity Consumption in May644 GWhTotal electricity consumption at Ulanqab data centers in May 2026
• Month-over-Month Growth Rate of Electricity Consumption+8.6%Increase in May 2026 compared to April
• Increment in Power Utilization+68 MWIncrease in May month-over-month (excluding PUE changes)
• Regional Electricity Share6.7%Proportion of data center electricity consumption to Ulanqab's total social electricity consumption
• Target Price16.00 USDMaintained unchanged
• 2026E EPS0.98 RMBMorgan Stanley forecast

Impact & implications

The report believes that the continuous growth in electricity consumption at Ulanqab data centers validates the resilience of demand in the region, which is positive for VNET Group's short-term operational performance. Stable move-in speeds help support the company's revenue growth expectations and provide a solid underlying asset base for future asset monetization (such as REITs). For investors, this data enhances confidence in holding the stock, especially given potential fluctuations in cloud services and AI investments, where robust actual operational data is particularly important.

Risks

• Hyperscalers reducing cloud capital expenditure, particularly regarding AI-related investments.
• Delays in data center capacity delivery.
• Weaker-than-expected sales execution by the company.

What to watch

• The signing of new wholesale contracts.
• Whether customer move-in speed exceeds expectations.
• Further interest rate cuts in China or the US.
• Progress and valuation appreciation in asset monetization through REITs.