AI The explosion in computing power demand drives order and listing acceleration. GDS achieved profitability last year, but the company's profit quality is still adjusting under the impact of asset impairment and investment income.
<h4>Key Points:</h4>
<ul>
<li>The company turned a profit last year, with revenue increasing by 10.8% year-on-year to 11.43 billion yuan and a net profit of 960 million yuan.</li>
<li>Last year recorded a one-time gain of 2.364 billion yuan from the termination of the merger with a subsidiary.</li>
</ul>
Li Shida
2025 is set to be the year of comprehensive penetration of artificial intelligence, and the data center industry is undoubtedly in the most direct beneficiary position of this wave. With the rapid rise in computing power demand, data centers are becoming the key infrastructure of the AI industry chain. For GDS Holdings Limited (GDS.US; 9698.HK), the most intuitive manifestation is the significant acceleration of new orders and customer demand.
According to the company's latest disclosed performance report, both new orders and customer migration volumes reached a five-year high, with the billing area increasing to 504,800 square meters and the billing rate rising to 75.5%. Meanwhile, annual revenue reached 11.43 billion yuan (1.63 billion USD), a year-on-year increase of 10.8%, and adjusted EBITDA rose to 5.402 billion yuan, also recording double-digit growth. Driven by demand, the company's years of losses came to an end, achieving a net profit of 960 million yuan for the year.
<h4>Book Profit</h4>
However, if we further break down the profit structure, it is not as rosy as it appears on the surface. During the period, the company was still in a loss state at the operating level, with an operating loss of approximately 55.75 million yuan, while confirming an asset impairment loss of as much as 1.56 billion yuan, reflecting that some asset returns were below expectations. The ability to turn a profit largely came from support from non-recurring items, including approximately 716 million yuan in equity method investment income and about 2.364 billion yuan in one-time gains from the termination of the merger with a subsidiary. This termination gain mainly came from the introduction of external investors and the sale of part of the equity of its data center asset platform DayOne.
To balance expansion and financial stability, the company has been continuously promoting asset monetization and diversified financing in recent years, continuously monetizing assets and financing through asset-backed securitization products (ABS), real estate investment trusts (C-REIT), and convertible preferred shares. By the end of the year, the company's cash balance rose to 14.3 billion yuan, but total short-term and long-term debt still exceeded 46 billion yuan. Under a high capital expenditure model, its profits still largely depend on capital operations and accounting treatments.
At the same time, compared to the previously more diversified corporate clients, this round of new demand comes more from large-scale cloud service providers and AI computing power clients. Such clients typically have larger order sizes and faster listing rhythms, driving simultaneous increases in billing area and utilization rates, promoting steady revenue growth. However, the change in demand structure also means an increase in customer concentration, which may bring stronger bargaining power and exert certain pressure on profitability
This trend has begun to reflect in the earnings, with the adjusted gross margin slightly declining from 51.9% to 50.6% in the fourth quarter of 2025, while the overall gross margin also fell from 21.5% to 21.0%. Management pointed out that one of the main reasons is the rising proportion of utility expenses relative to revenue; however, from a structural perspective, it is also related to the shift in the customer mix towards large computing power demands and increased resource consumption per unit.
The expansion of AI demand has also kept capital expenditures at a high level. Observing the cash flow statement, the company continues to increase its investment in data center construction, expecting capital expenditures to be around 9 billion yuan in 2026. Notably, in the fourth quarter, the company recorded a net loss of 460 million yuan, which widened compared to the same period last year, mainly affected by asset impairment, reflecting that during the rapid expansion process, some asset returns are still under pressure.
<h4>Accumulating Computing Power Resources</h4>
Despite this, the company continues to ramp up its computing power infrastructure layout, accumulating approximately 900MW of resource reserves in first-tier cities in China to provide a foundation for meeting AI demand. At the same time, the company is accelerating its overseas expansion, having recorded 431MW of contracted capacity in Southeast Asia and initiating a 120MW project in Bangkok, Thailand, indicating that international business is gradually transitioning from the investment phase to the harvest phase.
On the first trading day after the earnings announcement, the company's US stock price saw an increase of about 5%, but later narrowed to 0.52%, closing at $44.49, with a cumulative increase of about 28.5% year-to-date. After the earnings report, the Hong Kong stock fell more than 5%, but still has a year-to-date increase of 28.6%. Morgan Stanley reiterated its &#34;Overweight&#34; rating with a target price of $64, believing that AI demand will continue to drive orders and listings.
From a valuation perspective, GDS currently has a price-to-sales ratio of about 6.5 times, lower than the 10.4 times of global data center leader Equinix (EQIX.US), but higher than Century Internet (VNET.US) at 1.8 times. Compared to Equinix, GDS is still in the expansion and investment phase, with profitability quality and cash flow stability not yet fully matured; compared to Century Internet, the market may be more optimistic about its ability to meet AI computing power demand and asset operational efficiency.
GDS is transitioning from scale expansion to improving profitability quality, with AI demand bringing unprecedented growth opportunities to the company, but it also imposes higher requirements on cost structure and capital expenditures. With the increasing proportion of high-end customers and ongoing asset monetization, the company's profitability is expected to gradually improve, but short-term profit volatility and cash flow pressure still need attention

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GDS turned a profit last year, with revenue increasing by 10.8% year-on-year to 11.43 billion yuan and a net profit of 960 million yuan. However, the quality of earnings was affected by asset impairment and investment income, with an operating loss of approximately 55.75 million yuan. The main source of profit was one-time gains, including 2.364 billion yuan from the termination of the merger with a subsidiary. The company's new orders and customer demand significantly increased, with the billable area rising to 504,800 square meters and the billing rate increasing to 75.5%

GDS turned a profit last year, but the impressive surface relies entirely on one-time gains