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On Tuesday, Citi analyst Louis Tsang reaffirmed a Buy rating and a $20.00 price target for VNET Group Inc (NASDAQ:VNET), following a non-deal roadshow (NDR) with the company’s Chief Financial Officer. The company, which has seen its stock surge over 500% in the past year according to InvestingPro data, sparked significant investor interest during discussions centered on industry outlook, pricing trends, and utilization rates. As a prominent player in the IT Services industry, VNET has demonstrated strong revenue growth of 11.4% over the last twelve months.
Investors were particularly interested in the potential for Tencent (HK:0700)’s capital expenditure plan, which is expected to be disclosed on March 19, to act as a positive catalyst for VNET Group. Should Tencent’s capex guidance surpass the anticipated range of approximately 100 to 120 billion RMB, it could positively impact VNET Group’s prospects. InvestingPro analysis reveals that while VNET operates with significant debt (Debt/Equity ratio of 2.84), the company maintains a solid Piotroski Score of 7, indicating strong financial position fundamentals.
Concerns regarding overbooking and the H20 update were addressed during the NDR. The analyst noted that current orders are secure with accelerators, and he believes that domestic ASIC manufacturers will be able to meet any demand shortfall in the long term. This assurance appears to mitigate investor worries about the company’s ability to fulfill orders.
Furthermore, the analyst projected that the majority of H20 deliveries are likely to occur in the first half of 2025. This could lead to an acceleration in delivery pace to meet rapid customer demand, potentially exceeding the existing 400MW target and advancing the utilization ramp. Such developments could enhance VNET Group’s EBITDA growth for fiscal years 2025 and 2026.
Citi has maintained VNET Group on its Focus List, signaling continued confidence in the company’s performance and outlook.
In other recent news, VNET Group Inc. reported its financial results for the fourth quarter of 2024, showing a mixed performance. The company posted earnings per share (EPS) of $0.06, which was below the forecast of $0.11. However, VNET exceeded revenue expectations, reporting $2.25 billion against a forecast of $2.06 billion. The company demonstrated robust revenue growth, driven by increased demand for AI infrastructure and data center services, with a year-over-year revenue increase of 18.3%. Additionally, VNET’s adjusted EBITDA grew by 63.8% year-over-year to RMB 721.3 million for the quarter.
In other developments, Citi analyst Louis Tsang raised VNET Group’s price target to $20 from $16.10, maintaining a Buy rating on the company’s shares. The analyst cited the company’s ambitious capital expenditure plan and the potential for robust growth as justifications for the revised target. Tsang also highlighted the company’s strategy to deliver 400MW by 2025 and the issuance of $430 million in convertible bonds as factors that effectively address investor concerns. These recent updates reflect a focus on capital investment and growth, with analysts expressing confidence in VNET’s financial strategy.
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