Morgan Stanley raises the target price of GDS and Vnet, rating "Overweight"

Morgan Stanley's report indicates that scale demand, resource availability, and policies are collectively driving the future deployment of hyperscale operators' AI data centers towards remote areas. The firm believes that in the AI era, the supply-demand dynamics of the remote data center market will be healthier and have stable return prospects. Leading data center operators with strong resource pipelines will benefit from this trend.

Morgan Stanley is optimistic about GDS (GDS.US), rating it "Overweight" and listing it as a top pick, raising the target price from $54 to $64 due to its strategic transformation in the Chinese market and rapid progress in resource construction in remote areas. At the same time, the firm is also optimistic about Vnet (VNET.US), rating it "Overweight" and raising the target price from $14 to $16 due to its first-mover advantage.

The firm identified three early movers in remote areas (i.e., those that established resource pools at western nodes before the surge in AI demand) — Vnet, as well as private operators like Centrin. Additionally, there are two fast followers (rapidly acquiring resources and preparing for a new round of bidding for hyperscale operators) — GDS and Qinhuai Data under Dongyangguang (600673.SH). These five companies form a leading group of suppliers, and the firm expects them to likely outperform their peers in acquiring new orders in the AI era. Chinese telecom operators also play an important role in remote site operations.

The firm maintains a "Market Perform" rating for A-share data center company Aofei Data (300738.SZ) and maintains a "Reduce" rating for Guanghuan Xinwang (300383.SZ) and Baoxin Software (600845.SH), as it believes that the lack of effective layout in the right remote hubs will lead to risks of market share loss for them in the medium to long term