Nomura maintains Buy on VNET, lowers target price to USD13

Overview

This is a 2Q26F earnings preview report on VNET Group by Nomura. The report's core view is that: in the short term, CSP customer move-in pace is slower than expected, leading to a longer revenue recognition cycle; however, wholesale IDC business growth, cost control, and expanding AIDC demand in China still support EBITDA growth and the Buy rating.

Core views

Nomura expects VNET 2Q26F revenue of CNY2.76bn, up 13.2% year-over-year, of which retail IDC revenue is expected to grow 1.2% year-over-year, wholesale IDC revenue 36.4% year-over-year, and non-IDC revenue to remain flat year-over-year. Adjusted EBITDA is expected to be CNY902mn, up 23.1% year-over-year, with adjusted EBITDA margin expanding 2.6 percentage points year-over-year to 32.7%. The report believes that China's domestic AIDC demand will maintain solid growth over 2026-28F, supported by AI spending from major Chinese CSPs and the rapid development of domestic LLM companies; VNET's regional footprint in Inner Mongolia and annual delivery capacity of 400-500GW over 2026-28F put it in a favorable position.

Analysis framework

The report combines analysis of quarterly earnings forecasts, business segment growth, wholesale IDC power delivery, customer move-in pace, margin changes, DCF valuation, and EV/EBITDA multiples, and treats long-term AI and data-center demand as an important support for the investment thesis.

Methodology notes

• Valuation methodsDCF valuation model

  The target price of USD13.00 is based on a DCF model, assuming a WACC of 7.0% and a terminal growth rate of 2.0%, with cash flows discounted to the end of 2026F.

  DCF is used to estimate the company's intrinsic value. Based on this, the report derives the target price and explains that it corresponds to 12.7x 2027F EV/EBITDA.

• Relative valuationEV/EBITDA

  The target price corresponds to 12.7x 2027F EV/EBITDA, while the current share price is about 11x 2027F EV/EBITDA.

  EV/EBITDA is used to compare the company's valuation with its profitability, and the report uses this multiple to validate the valuation implication of the DCF target price.

• Fundamental forecastingRevenue and adjusted EBITDA forecast

  The report lowers 2026-28F revenue forecasts by 1.2%-2.7% and raises adjusted EBITDA forecasts by 0.6%-1.9%.

  The revenue downgrade reflects slower-than-expected short-term CSP customer move-ins, while the EBITDA upgrade reflects wholesale IDC business expansion and cost control.

Asset mapping & comparison

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

• VNET.OQ / VNET US

  The covered name in the report, affected by demand for China's IDC, AIDC, and AI computing power.

  Strengths

  Faster growth in the wholesale IDC business; strong regional footprint in Inner Mongolia; benefits from AI spending by Chinese CSPs and the development of domestic LLMs; adjusted EBITDA growth is expected to outpace revenue growth.

  Weaknesses

  Short-term CSP customer move-in pace is slower than expected, leading to a longer revenue recognition cycle; quarterly net incremental utilized wholesale IT power is constrained by the ramp-up of domestic chip production capacity.

  Comparison

  The target price corresponds to 12.7x 2027F EV/EBITDA, while the current level is about 11x 2027F EV/EBITDA; the benchmark index is NASDAQ.

  Risks

  Utilization ramp-up of newly built data centers is slower than expected; intensifying competition leads to a faster-than-expected decline in MRR.

• China AIDC/data center industry chain

  One of VNET's sources of long-term demand and earnings drivers.

  Strengths

  Demand is supported by AI investment from major Chinese CSPs and the development of domestic LLM companies; agentic AI applications may drive wholesale IDC pricing to stabilize or rise.

  Weaknesses

  Demand realization depends on customer move-ins, chip supply, and project delivery pace.

  Comparison

  The report does not provide direct item-by-item comparisons with peer companies.

  Risks

  The ramp-up of domestic chip production capacity, market competition, and customer expansion pace may affect the realization of industry prosperity.

Key data

• 2Q26F revenue forecastCNY2.76bnUp 13.2% year-over-year and 2.4% quarter-over-quarter.
• Retail IDC revenue growth+1.2% y-y2Q26F segment revenue forecast.
• Wholesale IDC revenue growth+36.4% y-yWholesale IDC is the main source of growth.
• Non-IDC revenue growthflat y-yExpected to remain flat year-over-year.
• 2Q26F adjusted EBITDACNY902mnUp 23.1% year-over-year.
• Adjusted EBITDA margin32.7%Expanded 2.6 percentage points year-over-year and declined 0.4 percentage points quarter-over-quarter.
• Net incremental utilized wholesale IT powerabout 60MWRoughly flat quarter-over-quarter; the report believes this is mainly constrained by the ramp-up of domestic chip production capacity.
• Annual capacity delivery capability400-500GW over 2026-28FThe report mentions VNET's delivery capability stemming from its regional footprint in Inner Mongolia.
• Target priceUSD13.00Lowered from the previous target price; based on DCF valuation.
• Current share priceUSD7.77As of 23-Jul-2026.
• Implied upside+67.3%Upside of the target price relative to the current share price.
• WACC assumption7.0%DCF model assumption, unchanged.
• Terminal growth rate2.0%DCF model assumption, unchanged.
• Valuation implied by target price12.7x 2027F EV/EBITDAImplied multiple of the target price provided in the report.
• Current trading valuation11x 2027F EV/EBITDACurrent trading multiple provided in the report.
• Market capitalizationUSD2,212.1mnDisclosed in the report table.
• 3-month average daily trading valueUSD66.0mnDisclosed in the report table.

Impact & implications

The report's investment implication for VNET is positive overall: although short-term revenue recognition is dragged by CSP customer move-in pace, faster growth in the wholesale IDC business, cost control, and continuing AI computing demand enhance earnings leverage. If demand from domestic LLM and agentic AI applications continues, wholesale IDC pricing may stabilize to trend upward in 2027-28F, thereby supporting valuation and the target price.

Risks

• Utilization ramp-up of newly built data centers is slower than expected.
• Intensifying market competition leads to a faster-than-expected decline in MRR.
• Short-term CSP customer move-in pace is slower than expected, which may continue to lengthen the revenue recognition cycle.
• Constraints from the ramp-up of domestic chip production capacity may affect growth in utilized wholesale IT power.
• Achievement of the target price may be affected by macro market trends, company earnings, and deviations from estimates.

What to watch

• Whether actual 2Q26F revenue, adjusted EBITDA, and margin meet the report's forecasts.
• Whether wholesale IDC revenue growth and net incremental utilized power re-accelerate.
• Whether CSP customer move-in pace and the revenue recognition cycle improve.
• AI capital expenditure by major Chinese CSPs, development of domestic LLM companies, and demand for agentic AI applications in China.
• Whether wholesale IDC pricing stabilizes or trends upward in 2027-28F.
• Utilization ramp-up of newly built data centers and changes in MRR.