Record order backlog positions GDS for earnings acceleration from 2H 2027

Overview

Goldman Sachs maintains its Buy view following GDS's 2Q 2026 results. The report believes the China business's strong order backlog, AI and non-AI customer demand, and upcoming capacity deployments will improve earnings visibility over the next several years. Given an approximately 12-to-18-month lag in order conversion, the improvement in adjusted EBITDA growth is expected to be more pronounced in 2H 2027 and beyond.

Core views

The report's core view is that incremental EBITDA from new customer deployments will gradually exceed the pressure caused by lower pricing on renewals of existing contracts. Goldman Sachs expects GDS China to deploy 235MW, 700MW, and 1GW of capacity in 2026, 2027, and 2028, respectively, driving total utilized capacity to 3.1GW in 2028. Although revenue forecasts for 2027-2028 were raised, adjusted EBITDA forecasts changed little overall because renewal repricing offsets part of the gains. DayOne's continued expansion in Southeast Asia and Europe provides additional support for GDS's segment valuation.

Analysis framework

The report centers on the conversion of the order backlog into revenue and EBITDA, decomposing annual EBITDA changes into the contribution from net deployments and losses from renewal repricing, while using a sum-of-the-parts valuation to assess the value of GDS China and DayOne.

Methodology notes

• Valuation frameworkSum-of-the-parts valuation

  GDS China and DayOne are valued separately using target EV/EBITDA multiples, with a holding-company discount then applied.

  Goldman Sachs applies a 13.5x target EV/EBITDA multiple to GDS China's 2027 EBITDA and a 23x target EV/EBITDA multiple to DayOne's 2027 EBITDA, adjusts for GDS's 19.9% stake in DayOne, and subsequently applies a 10% holding-company discount.

• Earnings driver decompositionEBITDA waterfall analysis

  Decomposes YoY EBITDA changes into the impacts of new deployments and contract renewal repricing.

  The report estimates the contribution from net deployments using management guidance of annualized EBITDA of approximately RMB2.2 million per MW, while estimating the earnings drag from renewal prices that are 20% to 30% lower than the original contracts.

Asset mapping & comparison

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

• GDS.US

  Primary company covered by the report

  Strengths

  Leading position in China's neutral data center market, strong order backlog, healthy AI and non-AI demand, and the ability to capture demand from leading cloud providers.

  Weaknesses

  Renewal repricing reduces revenue per unit and margins, constraining near-term adjusted EBITDA growth.

  Comparison

  The report believes GDS China's implied valuation has room to rerate relative to its 2027 earnings potential; DayOne is assigned a higher target EV/EBITDA multiple, reflecting its distinct growth and profitability profile.

  Risks

  Customer deployments and utilization improvement fall short of expectations, pricing trends weaken, customer churn, and slower-than-expected deleveraging.

• 9698.HK

  GDS's Hong Kong-listed shares

  Strengths

  Shares the core operating drivers of GDS.US and benefits from the higher target price.

  Weaknesses

  Also faces lower renewal pricing and capital expenditure pressure.

  Comparison

  Goldman Sachs assigns a HK$48 target price, implying 40.2% potential upside.

  Risks

  The same operating, pricing, financing, and overseas business execution risks as GDS.US.

• DayOne

  GDS's overseas data center business, in which it holds a 19.9% equity stake

  Strengths

  Continued expansion in Southeast Asia and Europe, with recent construction commencements and energy-security projects strengthening visibility into capacity growth.

  Weaknesses

  Detailed financial and operating performance was not disclosed for 2Q 2026, and the overseas business remains in the expansion and ramp-up stage.

  Comparison

  Valued at a 23x target EV/EBITDA multiple on 2027 EBITDA, above GDS China's 13.5x, reflecting higher growth expectations.

  Risks

  Slower-than-expected overseas revenue and earnings ramp-up, project construction and energy infrastructure execution risks, and demand realization below expectations.

Key data

• GDS 12-month target priceUS$49.00Previously US$46.00, mainly driven by adjustments to foreign-exchange assumptions.
• GDS current price and potential upsideUS$34.41; 42.4%Cover-page price and upside disclosed in the report.
• 9698.HK target price and potential upsideHK$48.00; 40.2%Previous target price was HK$45.00.
• Cumulative orders471MWAs of June 2026; including 263MW of new orders in 2Q 2026.
• GDS China adjusted EBITDA growth2027E 8%; 2028E 19%Excluding one-off items.
• GDS China revenue2026E RMB12.79 billion; 2027E RMB13.83 billion; 2028E RMB17.61 billionGoldman Sachs estimates.
• GDS China adjusted EBITDA2026E RMB6.09 billion; 2027E RMB6.05 billion; 2028E RMB7.20 billionGoldman Sachs estimates.
• DayOne growth forecastRevenue and adjusted EBITDA CAGR of 100% and 118%, respectively, from 2025 to 2028Based on assumptions for growth in overseas capacity commitments.

Impact & implications

If orders convert as expected, GDS China's revenue and EBITDA growth should accelerate from 2H 2027, creating an opportunity for the valuation to rerate toward an implied 2027 EV/EBITDA level above approximately 9x for the China business. DayOne's overseas expansion and high-growth outlook are also important incremental drivers of segment valuation; however, lower renewal pricing means order growth may not immediately translate into profit growth of a similar magnitude.

Risks

• Customer deployment demand and capacity-utilization improvement are below expectations.
• Pricing trends in China and overseas markets are weaker than expected, with a greater decline in renewal pricing.
• Overseas business revenue and earnings ramp-up are slower than expected.
• Customer churn risk.
• Deleveraging progresses more slowly than expected.
• Capital expenditure, financing, and execution risks arising from large-scale capacity expansion.

What to watch

• The pace of conversion from the order backlog to actual customer deployments and the 12-to-18-month conversion lag.
• Contract renewal area and repricing magnitude in 2H 2026 and 2027.
• Changes in GDS China utilization, EBITDA per MW, and revenue growth.
• Whether adjusted EBITDA growth accelerates as expected in 2H 2027.
• DayOne's capacity construction, energy security, and commercialization progress in Europe and Southeast Asia.
• Net debt, cash burn, and deleveraging progress.