On Friday, UBS analyst raised the price target for VNET Group Inc (NASDAQ: VNET) to $7.00 from the previous $6.40, while reiterating a Buy rating on the stock. Currently trading at $3.86, VNET has shown remarkable momentum with a 112% surge over the past six months.
According to InvestingPro data, analysts maintain a bullish consensus with price targets ranging from $3.92 to $10.75. The adjustment follows a corporate non-deal roadshow (NDR) in Hong Kong, where VNET's executive team provided insights into the company's growth prospects and market dynamics.
VNET Group, a data center services provider, has observed approximately 2 gigawatts (GW) of new tenders in the third-party internet data center (IDC) market for the year 2024, with expectations of a similar scale for the following years. The company's revenue has grown nearly 7% over the last twelve months, reflecting its expanding market presence. This surge is primarily attributed to the demands of artificial intelligence (AI) computing. VNET identified that organic demand from cloud and internet services amounts to hundreds of megawatts (MW).
The company's current client base includes two major hyperscalers, Alibaba (NYSE:BABA) and ByteDance, known for their significant investments in AI. VNET anticipates that additional hyperscalers will issue new orders as they assimilate existing in-house capacity. The firm's management believes that in the era of AI, hyperscalers will increasingly opt to lease capacity from third-party providers like VNET instead of constructing their own facilities.
This trend is driven by several factors: the high cost of AI GPU investments, the diminishing proportion of IDC costs in total AI expenditures, and the critical importance of timely delivery as hyperscalers rapidly deploy AI technologies. VNET is positioned to meet these demands more efficiently than in-house teams of hyperscalers, according to the company's leadership.
VNET's strategic outlook, as presented during the NDR, reflects the company's confidence in the growing demand for its services amidst the AI boom and the evolving preferences of hyperscale companies toward third-party infrastructure providers. While InvestingPro analysis reveals some financial challenges, including significant debt levels and cash burn, analysts project profitability for the company this year.
For deeper insights into VNET's financial health and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers, along with 13 additional ProTips and extensive financial metrics.
In other recent news, VNET Group Inc. has been the focus of positive developments.
The company reported a 12% and 20% year-over-year growth in third-quarter revenue and EBITDA, respectively, surpassing estimates by Jefferies and consensus. This strong performance prompted VNET to update its full-year 2024 revenue and EBITDA guidance, indicating an increase of about 2%.
VNET has also made strides in expanding its operations, signing new wholesale orders totaling 67MW and securing approximately 500MW of power in Hualai, Hebei. This expansion has increased VNET's long-term power resources to a substantial 1.7GW.
In addition, VNET announced the sale of a 49% stake in its largest wholesale project, a move expected to generate Rmb1.15 billion. This capital will further support growth in its wholesale segment. Jefferies has responded to these developments by increasing its price target on VNET's stock to $10.73, maintaining a Buy rating.
VNET's third-quarter earnings also witnessed a significant surge, primarily driven by its artificial intelligence (AI) services and wholesale data center operations. The company's net revenues increased by 12.4% year-over-year, reaching RMB2.12 billion, and its adjusted EBITDA rose by 20.2% to RMB595 million. These factors led VNET to elevate its full-year guidance, indicating a robust financial trajectory.
Lastly, VNET's commitment to sustainable development is highlighted by its focus on strategic campuses and green energy initiatives, such as the Wulanchabu Green Energy Project. The company is also exploring innovative capital strategies, including a pre-REITs project with a leading Chinese insurance company for the Taicang IDC campus.
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