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On Thursday, JPMorgan analyst Gokul Hariharan adjusted the price target for GDS Holdings (NASDAQ: NASDAQ:GDS), a leading developer and operator of high-performance data centers in China. The new price target is set at $34.00, a significant increase from the previous target of $7.50, while the firm has maintained a Neutral rating on the stock. According to InvestingPro data, GDS has shown remarkable momentum with a 276% return over the past year, though the stock has recently experienced an 8.7% decline in the past week. The company’s current market capitalization stands at approximately $6 billion.
During the fourth quarter earnings call for the fiscal year 2024, GDS Holdings highlighted several key points. The company has observed a growing demand for AI in China, underscored by a substantial ~152MW deal with a top cloud hyperscaler. Despite ongoing pricing pressure, GDS anticipates that the current overcapacity issues may resolve within the next 6 to 12 months. InvestingPro analysis shows the company achieved revenue growth of 3.7% in the last twelve months, with total revenue reaching $1.4 billion. Get access to 12 additional exclusive ProTips and comprehensive financial analysis with an InvestingPro subscription.
GDS Holdings has adopted a cautious approach due to the uncertainties surrounding GPU supply and the returns on investments. Consequently, the company is projecting a low-teens growth rate for the years 2025 and 2026. GDS is continuing its refinancing activities, including a C-REIT listing and asset-backed securities (ABS), aiming to lower its net debt to 5-6 times EBITDA over the next 12 to 24 months. InvestingPro data reveals the company operates with a debt-to-equity ratio of 1.98 and maintains a current ratio of 1.28, indicating significant leverage but adequate liquidity to meet short-term obligations.
The company’s international business, known as DayOne, is expected to maintain strong momentum over the next 12 to 18 months. This is despite the recent enactment of AI diffusion laws, and DayOne is on track to potentially pursue an IPO within the next 18 months. However, GDS Holdings remains cautious about the impact of these laws and the potential dilution of its stake in DayOne in future funding rounds.
JPMorgan’s analysis suggests that GDS stock may remain range-bound after experiencing a significant rally in the past three months. The firm anticipates that the excitement around data center capital expenditure growth may not translate into substantial EBITDA upgrades in the near term. While the international business is expected to perform well, its contribution to GDS Holdings’ share price is currently deemed modest, with JPMorgan assigning a value of $7.00 per share to DayOne in their price target.
The report identified key catalysts that could positively influence GDS Holdings’ performance, including stronger AI momentum or indications that H20 NVIDIA (NASDAQ:NVDA) chips are not restricted. Conversely, potential risks include the impact of AI diffusion rules on DayOne or stricter restrictions on H20 chips, which could hamper the growth of AI data centers in China.
In other recent news, GDS Holdings has been the focus of multiple analyst updates following its fourth-quarter 2024 earnings report. Despite not meeting expectations, the company highlighted a significant 152MW deal with a hyperscale service provider in China, underscoring strong demand in the region. TD Cowen maintained a Buy rating but lowered its price target to $38, citing the company’s performance and 2025 outlook. JMP Securities, however, increased its price target to $40, maintaining a Market Outperform rating, and noted the company’s progress toward converting its Chinese business into a REIT.
Raymond (NSE:RYMD) James upgraded GDS Holdings to a Strong Buy with a $53 price target, expressing confidence in the company’s strategic shift beyond mainland China. Jefferies also upgraded the stock to Buy, setting a $45 target, and highlighted the company’s strategy to manage capital raising without diluting shareholder value. Morgan Stanley (NYSE:MS) reaffirmed its Overweight rating with a $39 target, following GDS Holdings’ announcement of a private REIT deal valued at Rmb2.9 billion. This transaction is expected to aid the company’s efforts to reduce leverage and fund future capital expenditures.
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