Wednesday, Morgan Stanley (NYSE:MS) reiterated an Overweight rating and a $39.00 price target on GDS Holdings (NASDAQ:GDS), a prominent player in the IT Services industry that has seen its stock surge nearly 450% over the past year. According to InvestingPro data, the company is currently trading near its 52-week high of $34.87, with analysts’ targets ranging from $7.25 to $39.98. The company’s growth prospects are being closely watched as Alibaba ’s (NYSE:BABA) upcoming earnings report approaches. Alibaba is set to report third-quarter fiscal year 2025 earnings on February 20, which could provide insights into domestic AI investments and the potential impact on GDS Holdings, as Alibaba is a major client for GDS in China.
The report from Alibaba may indicate its future capital expenditure plans and public cloud revenue outlook, both of which are crucial for GDS Holdings’ growth prospects. With revenue growth of 12% in the last twelve months and an EBITDA of $640 million, GDS Holdings’ performance metrics from InvestingPro show the company’s significant market presence. Alibaba’s investment decisions, especially in AI following its partnership with Apple (NASDAQ:AAPL) and the release of new AI models, could significantly affect the data center industry, including GDS Holdings.
Morgan Stanley outlines three possible scenarios based on Alibaba’s report: a stable capital expenditure plan for fiscal year 2026, an increase in AI investments leading to higher capital expenditures, or a reduction in future capital expenditures. Each scenario carries different implications for GDS Holdings’ stock performance. A stable capex plan is expected to bring no change, while a significant increase in AI investments could lead to a 10% increase in GDS Holdings’ share price. Conversely, a decrease in Alibaba’s capex could result in a 10% decline in GDS Holdings’ share price.
GDS Holdings’ relationship with Alibaba as its largest customer in China places the company in a pivotal position to benefit from Alibaba’s growth and investment in AI. With a current ratio of 1.19 and significant debt levels, as revealed by InvestingPro analysis, the company’s financial structure adds complexity to its growth story. The anticipation of Alibaba’s earnings report and its potential impact on GDS Holdings reflects the interconnected nature of the tech and AI sectors, especially within the data center industry. The outcome of Alibaba’s reported earnings and capex plans will be closely watched by investors as it could signal new booking opportunities and move-in rates for GDS Holdings. InvestingPro subscribers have access to 15 additional ProTips and comprehensive financial metrics that provide deeper insights into GDS Holdings’ investment potential.
In other recent news, GDS Holdings reported a third-quarter revenue of RMB2.97 billion, falling short of analyst expectations. Despite this, the company’s net loss narrowed down to RMB231.1 million, beating analyst projections. GDS Holdings also experienced a record number of Gross Organic Tier 1 Installs, driven in part by the demand related to artificial intelligence (AI).
TD Cowen raised the price target on GDS Holdings to $39.00 based on the company’s third-quarter earnings and anticipated fourth-quarter results that might exceed Wall Street’s expectations. The firm also predicts a positive surprise in GDS Holdings’ initial 2025 guidance in terms of revenue and EBITDA.
Meanwhile, Morgan Stanley maintained an Overweight rating on GDS Holdings with a price target of $30.00, following recent developments in U.S. policy regarding AI. The firm believes that the new AI policy could be beneficial for GDS Holdings’ subsidiary, DayOne, particularly with the import of high-end graphics processing units from the U.S.
Jefferies also reaffirmed its Buy rating on GDS Holdings, maintaining a price target of $27.06. The firm highlighted the company’s growth potential and capital expenditure outlook, with GDS management expressing confidence in securing 200 megawatts of new orders annually.
These are recent developments that reflect the ongoing confidence in GDS Holdings’ performance and future prospects.
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