Retail resilience cushions wholesale IDC ramp-up delays; Goldman Sachs maintains Buy on VNET but cuts target price to US$14

Overview

This report reviews VNET's second-quarter 2026 results, focusing on demand for AI data centers in China, the pace of capacity delivery and customer move-ins, capital expenditure and financing capacity, and its computing power–energy partnership with CATL. Goldman Sachs believes retail IDC resilience can partially cushion delays in the wholesale business ramp-up. The long-term wholesale IDC growth thesis remains unchanged, but the balance sheet and financing execution are the key current constraints.

Core views

Following the earnings release, VNET shares fell 15% on August 18, while the S&P index was broadly flat over the same period. Goldman Sachs believes the market debate is not about insufficient data center demand, but rather whether strong demand may require higher capital expenditure and whether the company can secure sufficient funding for expansion. The report therefore identifies industry demand, capacity execution, the balance sheet, and strategic partnerships as the four main themes for assessing future performance. Demand remains strong, particularly for intelligent computing power driven by AI training and inference. Some hyperscale customers have already placed GW-scale orders this year, mainly targeting key hubs under the “East Data, West Computing” strategy. Goldman Sachs expects Alibaba and Tencent's combined capital expenditure to reach US$60 billion and US$70 billion in 2026 and 2027, respectively. Year to date, GDS and VNET have secured 471MW and 862MW of orders, respectively, along with 600MW and 355MW of reservation orders. In 1H26, their reserved or secured resources in China increased by 330MW and 1.4GW, respectively, to 5.8GW and 3.5GW. VNET secured 345MW of new wholesale orders in the second quarter, including increases of 101MW in committed capacity, 108MW in pre-committed capacity, and 136MW in the order pipeline. It still held 355MW of reservation orders at the end of the second quarter. Its total domestic wholesale capacity, including secured land reserves and resources awaiting development, reached 3.55GW, providing a resource base for subsequent expansion. Capacity construction is progressing faster than customer move-ins. VNET delivered 100MW in the second quarter, significantly above 18MW in the first quarter and also above Goldman Sachs' expectations. Ulanqab, Jiangsu, and Hebei contributed approximately 63MW, 32MW, and 4MW sequentially, respectively. Customer move-in capacity during the same period was 57MW, below 64MW in the first quarter, mainly comprising approximately 30MW from Hebei, 21MW from Ulanqab, and 4MW from Jiangsu. Move-ins at campuses such as N-OR 01/02 and N-HB03 were slower. Goldman Sachs believes this may have been related to tight chip supply but expects the move-in pace to recover once chip supply improves in 2H26. The report expects 333MW of capacity delivery to be back-end-loaded into 2H26 and forecasts net additions to utilized capacity of 167MW in 2H26 and 212MW in 1H27. Consequently, a substantial portion of delivered capacity is expected to convert into utilized capacity and wholesale IDC revenue only between 2H26 and 1H27. The pricing and operating resilience of retail IDC cushioned delays in the wholesale business ramp-up. Based on the second-quarter results, Goldman Sachs raised its 2026–2028 retail IDC revenue forecasts by 2%–4% while broadly maintaining its wholesale IDC revenue forecasts. As a result, total revenue forecasts changed by only 0%–2%, while adjusted EBITDA forecasts changed by only -1% to 1%. Under the new forecasts, revenue for 2026–2028 is RMB11.5098 billion, RMB13.6905 billion, and RMB15.8440 billion, respectively, while adjusted EBITDA is RMB3.6761 billion, RMB4.6186 billion, and RMB5.4583 billion. The corresponding revenue growth rates are 15.7%, 18.9%, and 15.7%, while EBITDA growth rates are 23.4%, 25.6%, and 18.2%. However, earnings-per-share forecasts remain negative at RMB-9.76, RMB-0.92, and RMB-2.62 for 2026–2028, respectively. The report's investment thesis therefore focuses more on EBITDA growth and enterprise value than on the P/E ratio. Wholesale IDC remains the core medium- to long-term growth driver. Approximately 75% of VNET's revenue came from IDC in 2025, while around 25% came from cloud computing and value-added services. Goldman Sachs expects wholesale IDC's share of revenue to increase from 35% in 2025 to 57% in 2028, with both wholesale IDC revenue and EBITDA achieving a CAGR of 37%–38% from 2025 to 2028. The report also expects VNET's wholesale EBITDA per MW to converge toward that of GDS's China business within 3–4 years. Contract stability also supports revenue visibility: existing contracts have a weighted average remaining lease term of 7 years, and 83% of contracted capacity expires in 2031 or later, reducing near-term renewal pricing risk. The cost of rapid expansion is substantial capital expenditure and higher leverage. Goldman Sachs expects VNET's combined capital expenditure to total approximately RMB20 billion in 2026–2027, specifically RMB10.1 billion in 2026 and RMB9.5 billion in 2027, with approximately 450MW expected to be delivered in each year. As of the period described in the report, the company held RMB7.2 billion in cash, cash equivalents, and restricted cash, against total debt of RMB23.4 billion. Of this, RMB2.0 billion and RMB5.0 billion are expected to mature in 2026 and 2027, respectively, with the latter including US$270 million of convertible bonds due in October 2027. The ratio of net debt to annualized adjusted EBITDA rose from 3.8x in the first quarter to 4.6x in the latest quarter. Goldman Sachs expects it to increase further to 5.8x in 2026 and 6.0x in 2027. The financing options listed in the report include convertible bond refinancing, project-level financing such as project loans and mezzanine debt, private REITs, additional debt or equity financing, and related-party loans. VNET's REIT transactions completed between 4Q25 and 1Q26 were valued at 13–14x EV/EBITDA, providing a reference for asset monetization. The company generally hopes to avoid launching significantly dilutive financing in the near term, but the execution and visibility of secure financing remain a focus for investors. Completion of the strategic investment by Lochpine Capital, a non-controlling affiliate of CATL, is particularly important. VNET and CATL plan to establish a computing power–energy partnership and advance global next-generation digital energy infrastructure through a three-tier system comprising GW-scale computing power and energy facilities, distributed computing power and energy networks, and a zero-carbon token ecosystem. Goldman Sachs believes data center operators are evolving from pure IDC operators into providers of “IDC operations plus green power asset management.” Under this framework, VNET could participate in renewable energy procurement optimization, on-site generation management, and hedging against power-market volatility to secure low-cost, sustainable electricity, although the implementation of the partnership still requires continued monitoring. On valuation, Goldman Sachs maintains its Buy rating but lowers its 12-month target price from US$16 to US$14. The target price is based on 2027 adjusted EBITDA and applies a 10.5x next-12-month EV/EBITDA multiple, down from 12x previously. The reduction mainly reflects alignment with the median next-12-month EV/EBITDA multiple over the past year, rather than a material deterioration in core EBITDA forecasts. Relative to the current price of US$6.72, the new target price implies 108.3% upside. Goldman Sachs' core view is that stronger AI investment will drive VNET's transition from a traditional retail IDC operator into a rapidly growing wholesale IDC operator and usher in a period of accelerating revenue and EBITDA growth. However, financing capacity and the realization of customer move-ins will determine whether this thesis can be successfully delivered.

Analysis framework

Goldman Sachs first identifies the market debate through the share-price reaction following the second-quarter results, then validates industry demand using hyperscale customer capital expenditure, orders, and resource reserves. It subsequently tracks capacity delivery, customer move-ins, and the conversion into utilized capacity by campus, using this analysis to adjust segment revenue and EBITDA forecasts. The report further assesses financing pressure by combining capital expenditure, cash, the debt maturity profile, and leverage forecasts, then analyzes potential computing power–energy synergies from the CATL partnership, and finally determines the target price using 2027 adjusted EBITDA and the comparable historical median EV/EBITDA multiple.

Methodology notes

• Industry/Sector Analysis FrameworkSupply-demand framework

  Data center supply-demand and resource reserve analysis

  The report measures demand using hyperscale customer capital expenditure, orders, and reservation orders, while measuring supply using delivered capacity, land, power quotas, and resources awaiting development, in order to assess industry demand intensity and VNET's foundation for expansion.

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Breakdown of delivered capacity, move-in capacity, and business revenue

  The report distinguishes among capacity delivery, customer move-ins, and utilized capacity to avoid equating completed construction directly with revenue recognition, and separately adjusts retail IDC and wholesale IDC revenue forecasts.

• Corporate Fundamentals and Financial FrameworkOperating/Financial Leverage Analysis

  Stress testing of capital expenditure, debt maturities, and net leverage

  The report links future delivery plans with capital expenditure, cash balances, debt maturities, and net debt/adjusted EBITDA to assess whether the company can finance its growth targets.

• Valuation MethodEV/EBITDA valuation

  Valuation based on a target next-12-month EV/EBITDA multiple

  Goldman Sachs applies a target EV/EBITDA multiple of 10.5x to 2027 adjusted EBITDA and, with reference to the median next-12-month EV/EBITDA multiple over the past year, lowers its 12-month target price from US$16 to US$14.

• Competitive and Strategic FrameworkValue chain analysis

  Integration of IDC operations and green power asset management

  The report analyzes VNET's partnership with CATL through the integration of computing facilities, power supply, and green energy management, focusing on how renewable energy procurement, on-site generation, and electricity-price risk management may affect data center costs and operations.

Asset mapping & comparison

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

• VNET Group (VNET.US)

  A key beneficiary of China's AI computing power demand, wholesale IDC expansion, and computing power–energy partnerships, although growth requires substantial capital investment and depends on timely customer move-ins.

  Strengths

  Ample orders and resource reserves; resilient retail IDC business; a weighted average remaining contract term of 7 years, with 83% of capacity expiring in 2031 or later; wholesale IDC revenue and EBITDA are expected to achieve a CAGR of 37%–38% from 2025 to 2028.

  Weaknesses

  Capacity move-ins lag deliveries, earnings-per-share forecasts remain negative, capital expenditure is high, and net leverage is expected to rise.

  Comparison

  Goldman Sachs expects VNET's wholesale EBITDA per MW to converge toward that of GDS's China business within 3–4 years; VNET's year-to-date orders total 862MW, above the 471MW reported for GDS.

  Risks

  Inability to finance growth targets, weaker-than-expected order acquisition and execution, AI-related geopolitical risks, further declines in the traditional business, and faster-than-expected or unforeseen changes in AI model training demand due to technological evolution.

Key data

• 12-month target priceUS$14.00US$16.00 previously; applies 10.5x next-12-month EV/EBITDA, versus 12x previously
• Current price and implied upsideUS$6.72; 108.3%Current price and target-price-implied change stated in the report
• Second-quarter capacity delivery100MWAbove expectations; 18MW in the first quarter
• Second-quarter move-in capacity57MW64MW in the first quarter, mainly affected by tight chip supply
• Expected delivery in 2H26333MWDelivery plan is significantly back-end-loaded
• Expected net additions to utilized capacity167MW in 2H26; 212MW in 1H27Delivered capacity is expected to gradually convert into wholesale IDC revenue
• Second-quarter new wholesale orders345MWIncludes 101MW committed, 108MW pre-committed, and a 136MW order pipeline
• Reservation orders at the end of the second quarter355MWReflects potential future demand
• Total wholesale capacity resources3.55GWIncludes capacity awaiting development and secured land reserves in China, excluding overseas reserves
• 2026–2027 capital expenditureRMB10.1 billion; RMB9.5 billionApproximately RMB20 billion in total over two years, with around 450MW expected to be delivered each year
• Cash and total debtRMB7.2 billion; RMB23.4 billionCash includes cash equivalents and restricted cash
• Net debt/adjusted EBITDA4.6x in the second quarter; 5.8x expected in 2026; 6.0x expected in 20273.8x in the first quarter, with leverage expected to continue rising
• 2026–2028 revenue forecastsRMB11.5098 billion, RMB13.6905 billion, and RMB15.8440 billionCorresponding growth rates of 15.7%, 18.9%, and 15.7%
• 2026–2028 adjusted EBITDA forecastsRMB3.6761 billion, RMB4.6186 billion, and RMB5.4583 billionCorresponding growth rates of 23.4%, 25.6%, and 18.2%
• Wholesale IDC revenue contribution35% in 2025; 57% expected in 2028Goldman Sachs expects the business mix to continue shifting toward wholesale IDC
• Wholesale IDC growth forecastRevenue and EBITDA CAGR of 37%–38% from 2025 to 2028AI investment is the primary growth driver
• Contract durationWeighted average remaining term of 7 years; 83% of capacity expires in 2031 or laterImplies relatively low near-term renewal pricing risk

Impact & implications

Goldman Sachs believes strong orders and resource reserves indicate that demand for AI computing power has not weakened. The main short-term issue is delayed revenue realization due to chip supply constraints and the pace of customer move-ins. Retail IDC resilience keeps core EBITDA forecasts for 2026–2028 broadly stable, while a rising wholesale IDC contribution is expected to drive faster growth and valuation rerating. However, high capital expenditure will further increase leverage, so financing execution, the conversion of delivered capacity, and completion of the strategic investment will determine whether the value of long-term growth can be realized.

Risks

• The company may be unable to raise sufficient funding for its established growth targets.
• New order acquisition and project execution may be weaker than expected.
• AI-related geopolitical risks may affect business development.
• The traditional business may decline further.
• Rapid technological evolution may cause AI model training demand to change faster than expected or in unforeseen ways.

What to watch

• Monitor management's responses regarding industry supply and demand, capital expenditure, and financing during the Goldman Sachs Asia Leaders Conference from August 31 to September 2.
• Monitor whether chip supply improves in 2H26 and whether the expected 333MW of delivered capacity is completed as planned.
• Monitor the conversion of delivered capacity into utilized capacity and wholesale IDC revenue, particularly the move-in pace from 2H26 to 1H27.
• Monitor the execution of convertible bond refinancing, project-level financing, private REITs, and other financing channels.
• Monitor whether Lochpine Capital's strategic investment is completed and whether potential financing results in equity dilution.
• Monitor the specific projects, business model, and execution progress of VNET and CATL's three-tier computing power–energy partnership.