Maintain Buy: Orders Intact, Earnings Acceleration Still Awaits a 2028 Catalyst

Overview

HSBC maintains its Buy rating on GDS. The report believes that Chinese artificial intelligence demand is driving an expansion in data center demand. With resources in tier-one cities, capacity in emerging regions such as Inner Mongolia, and its customer base, GDS can benefit from both GPU- and CPU-related demand. Despite strong order growth, the lag in capacity construction and customer move-ins means that earnings growth will mainly be released in 2028.

Core views

The core view is that order visibility is solid while near-term earnings conversion is slow. HSBC expects GDS to secure approximately 1GW of new orders annually in 2026 and 2027; leading internet and short-video customer orders totaled 263MW in 2Q26. As power permits are scarce and demand growth outpaces supply, GDS is better positioned than smaller unlisted operators to obtain permits. On the other hand, a higher mix of remote-region capacity and renewals of existing contracts will reduce unit rents, while capital expenditures and leverage remain key constraints.

Analysis framework

A sum-of-the-parts valuation is used, adding the Mainland China data center business and the value of the DayOne equity stake. The Mainland China business is valued using a 13x forward EV/EBITDA target multiple and the average of HSBC's 2026 and 2027 adjusted EBITDA forecasts; DayOne is valued based on its Series C financing valuation, reflecting conservative assumptions.

Methodology notes

• Valuation frameworkSum-of-the-parts valuation

  Separately estimate and add the value of the Mainland China business and the DayOne equity stake.

  This method reflects the different value drivers of GDS's mature and ramping China data center assets and its minority investment in DayOne.

• Relative valuationEV/EBITDA multiple method

  Valuation based on a forward multiple of enterprise value relative to adjusted EBITDA.

  HSBC applies a 13x forward EV/EBITDA multiple to the Mainland China business and uses the average of 2026 and 2027 adjusted EBITDA forecasts.

Asset mapping & comparison

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

• GDS.US

  Covered company

  Strengths

  AI-driven data center demand, leading customer orders, scarce power permits, resource deployment in tier-one cities and emerging regions, and potential value realization from the DayOne stake.

  Weaknesses

  Conversion of orders into revenue and EBITDA is subject to construction and move-in lags; unit rents face pressure, while capital expenditure and net debt are expected to rise.

  Comparison

  The Mainland China business is valued at 13x forward EV/EBITDA, below the approximately 21x 2026 expected EV/EBITDA cited for C-REITs in the report.

  Risks

  Large orders may not materialize, capacity delivery may be delayed, chip supply constraints may emerge, customer tenders may slow, financing or debt refinancing may be difficult, and price competition may intensify.

• DayOne

  Investee company in which GDS holds a 19.9% stake

  Strengths

  A potential IPO could unlock its embedded value and serve as a catalyst for a GDS re-rating.

  Weaknesses

  The current valuation is based on the Series C financing, and future value remains dependent on operating performance and capital market conditions.

  Comparison

  Under the Series C valuation, GDS's stake is worth approximately USD2.2bn; the report also discusses a scenario in which DayOne's total equity valuation is USD20bn.

  Risks

  A slowdown in DayOne's growth would reduce the value of GDS's stake, while both IPO timing and valuation remain uncertain.

Key data

• Investment ratingBuyRating maintained.
• Target priceUSD50.10Reduced from USD51.40 due to lower 2027 adjusted EBITDA forecasts.
• Current price and implied upsideUSD34.86; +43.7%Market data as of the close on August 18, 2026.
• New order expectationApproximately 1GW each in 2026 and 2027Leading customer orders totaled 263MW in 2Q26.
• Expected adjusted EBITDA YoY growth7% in 2026, 7% in 2027, 23% in 2028Excluding one-off items; earnings acceleration is expected to become more apparent from 2028.
• Recurring monthly rent expectationDown approximately 3% in each of 2026 and 2027Affected by lower renewal pricing and a rising mix of remote-region capacity.
• Cash returnApproximately 10% to 11%Lower development costs offset lower rental levels.
• DayOne stake valueUSD2.2bn, or USD11.18/ADSBased on GDS's 19.9% stake in DayOne and its Series C valuation.
• Mainland China business valuation multiple13x forward EV/EBITDAThe report states that C-REITs trade at approximately 21x 2026 expected EV/EBITDA.

Impact & implications

If orders convert into commissioned capacity and move-ins as expected, improved earnings growth after 2028 could support a valuation re-rating. In the near term, a potential DayOne IPO is the main catalyst; the report estimates that excluding DayOne's value, GDS trades at approximately 10x 2027 expected EV/adjusted EBITDA. If DayOne's total equity valuation reaches the assumed USD20bn level, GDS would trade at approximately 8x 2028 expected EV/adjusted EBITDA.

Risks

• Failure to secure new large orders, or delays in finalizing the 500MW memorandum-of-understanding order.
• New capacity delivery in Inner Mongolia, Ningxia, or Shaoguan being slower than expected.
• A slowdown in DayOne's growth, reducing the value of GDS's equity stake.
• Chip shortages slowing data center utilization ramp-up or order growth.
• Slower new data center tenders from internet or short-video customers.
• Failure to secure financing for capital expenditures or debt refinancing.
• Stronger-than-expected price competition, reducing margins.

What to watch

• Contracting and conversion progress toward the approximately 1GW annual new-order targets for 2026 and 2027.
• New leasing demand from leading internet and short-video customers and large-model companies.
• Power permit acquisition and the construction and move-in pace of projects in Inner Mongolia, Ningxia, Shaoguan, and other locations.
• Trends in recurring monthly rent, the share of remote-region capacity, and cash returns.
• DayOne's growth, financing valuation, and potential IPO progress.
• Capital expenditures, net debt, and debt refinancing capacity.