Jefferies maintains Buy stock rating on GDS, cites Malaysia potential for AIDC hub

On Tuesday, Jefferies sustained its Buy rating on shares of GDS Holdings (NASDAQ:GDS), a leading data center provider, with a price target of $27.44. The firm's projection is based on the potential of Malaysia to become a significant hub for Artificial Intelligence Data Center (AIDC), citing four key advantages that favor the country's position in the global market.

The analyst from Jefferies highlighted that Malaysia boasts of having ample power supply, robust telecommunications connectivity, strategic location, and a geopolitically neutral status, all of which are conducive to establishing a global AIDC hub. With these attributes, GDS Holdings, as one of the first movers in the region, is uniquely positioned to deliver between 400 and 500 megawatts (MW) of capacity in Johor within the next two years.

According to the analyst's commentary, GDS Holdings is not only well-placed to meet immediate demands but is also on a trajectory to potentially operate up to 1 gigawatt (GW) of capacity in the span of three years. This expansion is anticipated to meet the urgent global demand from technology companies that require substantial power for artificial intelligence applications and cannot afford to wait.

The analyst further emphasized the importance of financing deals in unveiling the inherent value of GDS Holdings. As tech players are urgently seeking power sources to support their AI operations, the ability of GDS to rapidly provide such capacities makes it a key player in the data center space.

The endorsement from Jefferies reflects a positive outlook on GDS Holdings' strategic moves and growth potential in the burgeoning field of AI data centers, particularly in the Malaysian market. The firm's analysis suggests that GDS is well-equipped to capitalize on the increasing global demand for AI-ready infrastructure.

In other recent news, GDS Holdings has reported a promising second quarter for 2024, demonstrating a 14% year-over-year revenue increase to Rmb2.83 billion, slightly exceeding both the consensus and BofA Securities' estimates.

The company also posted a net loss of RMB231.8 million or RMB1.30 per share, less than the projected RMB1.82 per share loss. BofA Securities has raised its target for GDS Holdings due to this growth, increasing the price target to $22.40, up from the previous $12.40. The firm also reiterated a Buy rating on the stock.

TD Cowen, another financial services firm, maintained its Buy rating for GDS Holdings and a steady price target of $27.00, bolstered by the company's commitment to its 2024 guidance and the strategic plans for its subsidiaries. GDS Holdings also secured major new customer orders in Johor, Malaysia, reflecting strong regional demand.

These recent developments indicate a positive outlook for GDS Holdings, with both BofA Securities and TD Cowen showing confidence in the company's financial future. However, these are analyst expectations and actual results may vary.

InvestingPro Insights

According to real-time metrics from InvestingPro, GDS Holdings has a market capitalization of $3.31 billion, showcasing its significant presence in the IT Services industry. Despite its prominence, the company is not expected to be profitable this year, with a negative P/E ratio of -5.08 and a further adjusted P/E ratio for the last twelve months as of Q2 2024 at -14.84. This aligns with the InvestingPro Tip that GDS operates with a significant debt burden and is quickly burning through cash.

However, investors may find interest in the company's recent performance, with a remarkable one-week price total return of 35.24% and a six-month return of 133.11%, indicating a large price uptick. This performance is reflected in the stock trading near its 52-week high, at 99.77% of that value. Furthermore, GDS's revenue has grown by 9.08% over the last twelve months, suggesting a positive trend in its operational results.

For investors considering GDS as part of their portfolio, it may be beneficial to explore the additional 13 InvestingPro Tips available on the platform, which provide deeper insights into GDS's financial health and market position. These tips can be a valuable resource for making more informed investment decisions.

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