7. GDS Holdings Ltd. (NASDAQ:GDS)
5 Year Revenue CAGR: 24.86%
Average Upside Potential as of November 14: 12.12%
GDS Holdings Ltd. (NASDAQ:GDS) provides information technology and data center services and offers colocation, consulting, and managed services to its customers. It’s a leading data center operator in China. The company provides colocation, managed hosting, cloud, and consulting services to a range of clients, including cloud service providers, internet companies, financial institutions, and telecommunications companies.
The increasing adoption of AI is driving demand for data center capacity, and this company is well-positioned to capitalize on this trend. Its ability to deliver data centers in record time and its strong operational capabilities are key differentiators in the market. Its strong financial performance is heavily influenced by the successful execution of its international expansion strategy.
Its international business is experiencing strong demand, particularly in Southeast Asia. GDS International, a subsidiary of GDS Holdings Ltd. (NASDAQ:GDS), has very recently secured a significant investment of $1 billion from renowned investors, including Coatue Management and The Baupost Group. This investment will fuel the expansion of GDS International’s data center capacity in key markets across Asia Pacific, including Hong Kong, Singapore, Malaysia, Indonesia, and Japan.
With this investment, GDS International aims to capitalize on the growing demand for data center infrastructure driven by the increasing adoption of AI and cloud technologies. The company’s strategic focus on emerging markets and its strong track record of delivering high-quality data center solutions position it well to benefit from these trends.
Baron Opportunity Fund stated the following regarding GDS Holdings Limited (NASDAQ:GDS) in its Q3 2024 investor letter:
“In the most recent quarter, we re-initiated a position in GDS Holdings Limited (NASDAQ:GDS). GDS is a pan-Asia data center operator with 1.5 gigawatts of power capacity across approximately 100 data centers in and around “tier one” cities in mainland China (GDS Holdings or GDSH), as well as 1.0 gigawatts of power capacity in its rapidly growing Asia ex-China business (GDS International or GDSI). GDS develops and leases data center space (on a power reservation basis) to the top global technology companies such as Alibaba, Tecent, ByteDance, Microsoft, Google, and Oracle under long-term, contracted arrangements. We recently met with CEO/founder William Huang and CFO Daniel Newman in our offices and believe the best days for the company are ahead of it due to durable secular tailwinds in cloud adoption (early innings in Asia, which are lagging the U.S. and rest of the world), continued growth in data, increasing demand from AI applications, and global constraints on power availability yielding sustained pricing power in light of low available supply amid continued strong demand. On a sum-of-the-parts basis, we see a path for the business to be worth $45 to $55 per share in two to three years versus approximately $20 at recent market price. For GDSI, based largely on contracted customer commitments, we see cash flow growing from less than $50 million today to over $500 million over the next three years, with the opportunity to ramp towards $1 billion a few years after that. We value GDSI at $15 per share over the near term and $25 per share over the next four to five years. Regarding GDSH, we believe the mainland China data center business is at the doorstep of a growth inflection and see cash flow growing from about $700 million today to $1 billion over the next three years based on lease-up of its available power capacity. We value GDSH at $30 to $40 per share over the near term and remain encouraged that there will be several catalysts to further enhance value (including a structure to place certain stabilized data center assets into a listed REIT vehicle).”
