Most market concerns around the sustainability of AI-driven data center spending in China may be overdone, according to UBS analysts. After a 40–60% valuation correction since February peaks, top names like GDS and VNET now trade at pre-DeepSeek levels, presenting attractive entry points.
Overview of UBS’s Bullish Thesis
Stable Project Delivery: Hyperscalers in China remain committed to AI workloads, with GDS and VNET executing projects on schedule.
Valuation Reset: Share prices have retraced to levels seen before China’s DeepSeek AI frenzy, removing much of the prior premium.
REIT Catalysts: Potential launches of data center REITs for GDS could unlock additional valuation upside.
UBS Top Picks & Financial Strength
GDS Holdings (GDS): UBS reiterates a Buy rating and lowered its price target to $45. According to FMP’s Company Rating & Information API, GDS carries an investment-grade profile with strong liquidity metrics—key for funding large-scale AI rack deployments—underscoring its resilience amid policy shifts (Company Rating & Information API).
VNET Group (VNET): Also maintained at Buy, with a trimmed target of $12.80. UBS projects VNET’s wholesale segment to deliver 56% EBITDA growth through 2026, supported by optimized data center locations near tier-1 Chinese cities.
Valuation Modeling & Future Upside
Investors can quantify the potential re-rating by modeling incremental AI cash flows:
Use FMP’s Advanced DCF API to simulate how new AI-driven orders and REIT dividends might lift intrinsic values over a 5- to 10-year horizon (Advanced DCF API).
Sensitivity analyses around chip-ban impacts and rack-density trends can highlight downside buffers and upside leverage.
Risks & Potential Headwinds
AI Demand Variability: A sudden slowdown in AI spending could pressure utilization rates and capex cycles.
Regulatory Hurdles: Further U.S. export controls on high-end GPUs may disrupt project timelines or increase input costs.
Macro Uncertainties: A broader tech-sector pullback or credit tightening in China could delay expansions.
Actionable Takeaways for Investors
Revisit Entry Points: After deep corrections, ladder into GDS and VNET around current levels, capturing potential rebound in project awards.
Model with Real Data: Leverage FMP’s DCF and Company Rating APIs to stress-test investment cases under varying AI-demand scenarios.
Watch REIT Developments: Approvals for data center REITs could trigger substantial valuation re-ratings—monitor regulatory filings closely.
