Chinese Data Center Operators Seek Growth Opportunities in AI Infrastructure
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Chinese Data Center Operators Seek Growth Opportunities in AI Infrastructure
The report notes that Chinese data center operators are expanding into higher-density infrastructure and frontier markets to capture AI-driven growth opportunities.
- GPUaaS pricing in the U.S. has risen by over 30% year-to-date.
- Companies such as GDS Holdings and VNET Group are benefiting from investments in AI infrastructure.
- Western hubs are emerging as new markets for data center capacity expansion in China.
Report interpretation
Overview
This report explores how Chinese data center operators are capturing AI-driven growth opportunities by expanding into higher-density infrastructure and frontier markets. It analyzes several operators—including GDS Holdings, VNET Group, Kingsoft Cloud, SUNeVision Holdings, and Shanghai Athub—and assigns each a Buy rating along with specific target prices.
Core views
The report argues that capital expenditures by Chinese hyperscalers remain significantly lower than those of their U.S. peers, but rising demand for AI infrastructure is enabling Chinese data center operators to achieve notable price increases through new business models like GPU-as-a-Service (GPUaaS). For example, GDS Holdings, one of China’s largest neutral data center platforms, is expected to continue benefiting from demand from major hyperscale clients. VNET Group, meanwhile, has entered a phase of accelerated revenue and EBITDA growth following its strategic shift toward wholesale IDC services. Additionally, the report identifies western hubs such as Ningxia and Inner Mongolia as emerging markets for data center capacity expansion in China. The report also provides detailed analyses of each company’s financials and valuation multiples. For instance, GDS Holdings has a target price of US$55/HK$54, VNET Group’s target is US$15.5, and Kingsoft Cloud’s target is US$19.4. These targets are derived using various valuation methodologies, including SOTP, EV/EBITDA multiples, and DCF models.
Analysis framework
The report employs multiple analytical approaches to reach its conclusions. First, it compares historical data with future expectations to illustrate trends in China’s data center capacity, demand, and utilization rates. Second, it applies valuation frameworks such as SOTP and EV/EBITDA multiples to assess intrinsic company values. Finally, it integrates industry trends and company-specific strategies to formulate target prices and rating recommendations. The report also discusses potential risks facing these companies, including client demand volatility, intensifying market competition, and uncertainties arising from technological shifts. Taking all these factors into account, the report maintains an optimistic outlook on the future prospects of these companies.
Methodology notes
The report applies SOTP valuation to GDS Holdings, valuing the company by segmenting it into distinct parts.
SOTP valuation involves breaking a company into separate business segments, valuing each independently, and summing the results—an approach suitable for companies with diverse business units.
The report uses a DCF model to value Kingsoft Cloud.
The DCF model estimates a company’s intrinsic value by forecasting future cash flows and discounting them to present value, best suited for companies with stable cash flows.
The report evaluates each company’s financial health by analyzing free cash flow.
Free cash flow represents the cash remaining after operating expenses and capital expenditures, reflecting a company’s ability to generate cash.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- GDS Holdings (9698.HK)Benefits from growing AI infrastructure demand
- Strengths
- Large developable capacity in China and a strong balance sheet
- Weaknesses
- Potential for lower renewal and new order pricing on existing contracts
- Comparison
- Stronger client base compared to other data center operators
- Risks
- Lower-than-expected demand growth and utilization improvement
- VNET GroupBenefits from accelerated AI investment
- Strengths
- Transitioned from a traditional retail IDC operator to a fast-growing wholesale IDC provider
- Weaknesses
- Exposure to financing and geopolitical risks
- Comparison
- Higher revenue and EBITDA growth rates compared to peers
- Risks
- Inability to secure financing needed to meet growth targets
- Kingsoft CloudBenefits from AI investments by clients like Xiaomi
- Strengths
- Highest AI revenue contribution at 31%
- Weaknesses
- Risk of supply chain disruptions
- Comparison
- Greater AI-related revenue growth potential compared to other cloud providers
- Risks
- Inability to secure high-end chip supply
- SUNeVision HoldingsBenefits from rising data and AI demand in Hong Kong
- Strengths
- Largest data center capacity in Hong Kong
- Weaknesses
- Competitive pressure from mainland Chinese peers
- Comparison
- Higher market share in Hong Kong compared to other data center providers
- Risks
- Hong Kong-specific geopolitical and economic risks
- Shanghai AthubBenefits from expansion of AI data center projects
- Strengths
- Ample capacity reserves
- Weaknesses
- Project delivery and customer concentration risks
- Comparison
- Stronger presence in northern China compared to other data center operators
- Risks
- Uncertainty around contract renewals
Key data
- China Data Center Capacity (GW)Increased from 4 GW in 2017 to 49 GW in 2028EExpected to continue growing in the coming years
- GDS Holdings Target PriceUS$55/HK$54Based on SOTP valuation
- VNET Group Target PriceUS$15.5Based on 12x EV/EBITDA multiple
- Kingsoft Cloud Target PriceUS$19.4Based on DCF model (WACC 10.3%, TGR 3%)
Impact & implications
The report believes that AI technology will drive significant growth in the data center sector, particularly in western hub regions of China. This presents substantial growth opportunities for leading Chinese data center operators. However, investors should remain mindful of potential risks, including volatile client demand, intensified market competition, and uncertainties stemming from technological change.
Risks
- Lower-than-expected demand growth and utilization improvement
- Financing difficulties hindering growth targets
- Geopolitical and economic risks affecting market demand
What to watch
- Actual execution of AI infrastructure investments
- Delivery progress of new orders by each company
- Changes in the geopolitical and economic environment