Strong Orders and AI Demand Support Buy Rating on GDS

Overview

This report reviews GDS's 2Q26 results. Deutsche Bank believes order demand driven by cloud and AI customers remains strong, while new orders, utilized area, and utilization rates all indicate improving operational momentum. Although the company needs to support expansion through higher capital expenditure and debt financing, the analyst maintains the Buy rating and 12-month target price of USD 50.00.

Core views

The core view is that demand has reached a transformative scale: GDS has 1.6GW of operational capacity, 0.6GW under construction, and 3.6GW of project pipeline, while 471MW of new orders in the first half approached the combined additions from 2023 to 2025. Orders are roughly evenly split between cloud and AI customers and span existing and new markets. The company is expanding from areas surrounding tier-one cities into computing hubs such as Inner Mongolia, Ningxia, and Shaoguan to capture multi-year AI-driven growth opportunities.

Analysis framework

The report assesses growth momentum using quarterly results, orders, and capacity-utilization data, and adjusts earnings forecasts based on management's 2026 guidance, three-year expansion plan, financing arrangements, and potential valuation gains from DayOne. Valuation uses a DCF methodology, supporting the maintained target price.

Methodology notes

• Valuation methodsDCF

  Discounted Cash Flow Valuation

  Equity value is determined by discounting expected cash flows. The analyst indicates that DCF valuation has been modestly increased, while the USD 50.00 target price is maintained for now.

• Operational AnalysisCapacity and Utilization Analysis

  Orders, operational capacity, capacity under construction, and utilization

  New orders, area utilization, and the expansion pace are used to assess data-center demand realization and subsequent revenue growth.

Asset mapping & comparison

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

• GDS.US

  Core Covered Name

  Strengths

  Rapid order growth, strong cloud and AI demand, improving utilization, ample capacity pipeline, and potential catalysts from DayOne and C-REIT asset monetization.

  Weaknesses

  Large-scale expansion requires high capital expenditure, placing future free cash flow and leverage under pressure.

  Comparison

  First-half new orders of 471MW were slightly below the combined level for 2023–2025; full-year 2025 orders were approximately 300MW, indicating a significant acceleration in demand growth.

  Risks

  Rising interest rates, overinvestment, declining spot prices, and potential equity supply and governance complexity from further stake sales by ST Telemedia.

Key data

• 2Q26 Revenue Growth YoY7%Pro forma growth excluding the impact of two China asset disposals was 12%.
• 2Q26 Adjusted EBITDACNY 1,406m, up 3% year-on-yearPro forma growth excluding the impact of two China asset disposals was 12%.
• 2Q26 Net ProfitCNY 838mMainly driven by DayOne revaluation gains.
• First-Half New Orders471MWIncluding 263MW of new orders in 2Q26.
• Utilization Rate79%Up 4 percentage points quarter-on-quarter; utilized area increased by 21,000 square meters quarter-on-quarter.
• 2026 Revenue GuidanceCNY 12,700m–13,000mYear-on-year growth of 11.1%–13.7%, raised from prior guidance.
• 2026 Adjusted EBITDA GuidanceCNY 5,900m–6,100mYear-on-year growth of 9.2%–12.9%, raised from prior guidance.
• 2026 Capital Expenditure GuidanceCNY 10,000mRaised from CNY 9,000m.
• Target Price and Current PriceUSD 50.00 / USD 34.77The current price is as of 2026-08-13, implying upside of approximately 43.8%.

Impact & implications

Accelerating orders improve visibility into future commissioning and revenue growth, with AI infrastructure demand serving as the primary catalyst. At the same time, the three-year CNY 30bn–50bn investment plan will raise net debt/EBITDA to 5–6x, making the investment case more dependent on project construction, asset securitization, and the planned realization of subsequent orders. Successful advancement of the DayOne IPO and C-REIT asset disposals could improve financing flexibility and provide valuation catalysts.

Risks

• Rising interest rates could increase financing costs and intensify pressure on earnings and valuation.
• If industry supply-demand conditions weaken, declining spot pricing could compress returns.
• The large-scale capital expenditure plan entails risks of overinvestment, construction execution, and demand realization.
• The debt financing ratio is relatively high, with net debt/EBITDA expected to rise to 5–6x.
• Potential further stake sales by ST Telemedia could pressure the share price, while the VIE structure and dual-class share structure may make transactions more complex.
• Uncertainty remains regarding DayOne's IPO valuation, financing, and gain recognition.

What to watch

• Whether full-year orders reach management's expected 1GW, and whether the subsequent 1GW of reserved demand converts into formal orders.
• Customer move-in and commissioning progress for 235MW in 2026 and approximately 700MW in 2027.
• Progress in increasing utilization toward target levels and the profitability of projects in new markets.
• Execution of CNY 10bn in capital expenditure, debt financing arrangements, and changes in net debt/EBITDA.
• Subsequent C-REIT issuance, CNY 4bn–6bn of asset disposals in 2026, and progress on the DayOne IPO.
• Whether revenue and adjusted EBITDA can fall within the raised guidance ranges.