Executive Summary / Key Takeaways

• GDS Holdings is strategically positioned to capitalize on China's burgeoning AI-driven data center demand, particularly for latency-sensitive AI inferencing in Tier 1 markets, leveraging its extensive land bank and advanced "AI-ready" infrastructure.
• The company's innovative capital recycling strategy, highlighted by China's first data center ABS transaction and a successful C-REIT IPO, provides a significant competitive advantage by unlocking value from stabilized assets and funding future growth opportunities.
• DayOne, GDS's international equity investee, is demonstrating phenomenal growth, rapidly expanding its global footprint in new markets like Thailand and Finland and is on track for an IPO within 18 months, creating substantial value for GDS shareholders.
• Despite short-term uncertainties regarding AI chip supply in China and a moderate decline in Monthly Service Revenue (MSR) per square meter, GDS maintains a solid financial outlook with high-single-digit adjusted EBITDA growth projected for 2025, supported by strong backlog delivery and disciplined CapEx.
• GDS's deep regional expertise, strategic focus on Tier 1 markets, and agile operational model differentiate it from larger global players and state-owned enterprises, enabling it to secure high-quality, long-tenor contracts in a rapidly evolving market.

The AI Imperative: GDS's Strategic Foundation in China's Digital Core

GDS Holdings Limited, founded in 2001, has evolved into a pivotal player in China's digital infrastructure, specializing in the development and operation of high-performance data centers. The company's enduring strategy has centered on establishing a robust presence in China's Tier 1 markets—Beijing, Shanghai, and Shenzhen-Guangzhou—a strategic choice that now positions it at the epicenter of the nation's accelerating AI revolution. This focus on prime locations, coupled with a deep understanding of local market dynamics and customer needs, forms the bedrock of GDS's competitive advantage.

The global data center industry is on the cusp of a multi-year growth phase, primarily fueled by the insatiable demand for Artificial Intelligence. In China, this "race for AI" is intensifying, with a notable shift from initial AI training in remote locations to the more latency-sensitive and geographically demanding AI inferencing in Tier 1 markets. This transition is a significant tailwind for GDS, as AI inferencing requires large, distributed sites within established cloud regions and availability zones, precisely where GDS has cultivated its extensive land and power resources. The company holds approximately 900 megawatts of powered land for future development in and around these critical Tier 1 markets, a resource that is increasingly scarce and valuable.

GDS's technological differentiation is a cornerstone of its ability to meet the rigorous demands of AI workloads. The company is developing "AI-ready" data centers, exemplified by its liquid cooling designs. This advanced cooling technology is crucial for managing the high power density required by modern AI servers, enabling power densities of around 20 gigawatts per rack in projects like its Batam campus. These designs are often customized by customers, who bear the upfront costs, further enhancing GDS's capital efficiency. Furthermore, GDS undertakes preliminary site preparations on its developable land, significantly shortening lead times for new deployments. This capability is a critical competitive edge, as customers deploying AI often require rapid, almost instantaneous, capacity. The strategic intent behind these technological advancements is to provide robust, high-performance infrastructure that directly supports the most demanding AI applications, thereby strengthening GDS's competitive moat and securing its position as a preferred partner for hyperscale and enterprise customers.

In the broader competitive landscape, GDS operates alongside global giants like Equinix (EQIX) and Digital Realty (DLR), as well as domestic state-owned enterprises such as China Telecom (CHA). While Equinix and Digital Realty boast extensive global footprints and diversified revenue streams, GDS's strength lies in its specialized focus and deep regional expertise within China. GDS's ability to navigate China's complex regulatory environment and its agile, customer-centric approach provide a distinct advantage, particularly for domestic enterprises and Chinese cloud providers expanding overseas. Compared to China Telecom, GDS differentiates itself through flexibility and innovation in managed hosting solutions, often with a more favorable cost structure due to its focused operations. The company's powered land and innovative asset monetization vehicles are considered unique in China, providing a significant competitive advantage as the industry enters the AI era.

Financial Performance and Operational Momentum

GDS has demonstrated solid financial and operational performance, reflecting its strategic execution. In the second quarter of 2025, the company reported a 12.4% year-on-year revenue growth and an 11.2% year-on-year increase in adjusted EBITDA. The adjusted EBITDA margin for the quarter stood at 47.3%. It is important to note that these reported figures are impacted by the deconsolidation of assets through its asset monetization strategy. Without the ABS transaction, the adjusted EBITDA growth rate for Q2 2025 would have been 13.9%, highlighting the underlying strength of the core business. Monthly Service Revenue (MSR) per square meter saw a slight decrease of 1.7% year-on-year, a trend attributed to both market price adjustments and a strategic shift towards more edge-of-town sites, which typically command different pricing than downtown co-location facilities. This MSR decline is expected to continue in the low-single digits for the next couple of years before stabilizing, at which point growth rates will more purely reflect volume expansion.

Operational metrics underscore this momentum. Gross move-in during Q2 2025 was approximately 20,000 square meters, consistent with levels over the past five quarters, pushing the utilization rate to 77.5%. This consistent move-in pace is expected to continue, driven by the delivery of a substantial 152-megawatt order signed in Q1 2025, with 35% of the current backlog slated for delivery in the second half of 2025. This 152-megawatt deal, the largest single order in GDS's history in China, is an AI-driven business requiring rapid delivery and full customer move-in within a year, showcasing the accelerated deployment cycles in the AI era.

For the full year 2024, GDS (continuing operations) reported revenue growth of 5.5% and adjusted EBITDA growth of 3%. On a normalized basis, excluding one-time items and BOT project transfers, these figures would have been 7.9% and 7.7% respectively, indicating a healthy underlying growth trajectory. The adjusted EBITDA margin for 2024 was 47.2%.

Strategic Capital Recycling and Deleveraging

A cornerstone of GDS's current strategy is its innovative approach to capital recycling, which significantly enhances its financial flexibility and deleveraging efforts. The company successfully completed China's first data center Asset-Backed Securities (ABS) transaction in late March 2025, followed by the landmark Initial Public Offering (IPO) of its China REIT (C-REIT) in August 2025. The C-REIT units began trading on the Shanghai Stock Exchange at implied cap rates below 5%. The IPO achieved an impressive EV to EBITDA multiple of 16.9x at the offering price of RMB 3 per unit, and subsequently traded at RMB 4.04 per unit, implying a 22.8x multiple on projected 2026 EBITDA. This is nearly double the current trading multiple of GDS's China business, underscoring the significant value unlocked through these monetization vehicles.

These transactions are highly accretive to shareholders, providing GDS with access to China's equity capital market on advantageous terms. The ABS transaction, for instance, was executed at an EV to EBITDA multiple of 13.3x. The proceeds from these initiatives are crucial for funding new investment opportunities, particularly in the high-growth AI segment, while simultaneously strengthening the balance sheet. GDS raised net proceeds of USD 676 million through convertible bonds and equity in the international capital market, specifically to repay short-term debt and potentially redeem existing convertible bonds. This has already had a tangible impact on the company's leverage profile, with net debt to LQA adjusted EBITDA decreasing from 6.6x at the end of Q1 2025 to 6.1x at the end of Q2 2025. Pro forma for the C-REIT transaction, this ratio is expected to further decline to 5.9x, and to 5.7x when adjusting for reinvestment in ABF and C-REIT listed securities.

Capital expenditure guidance for 2025 has been adjusted to RMB 2.7 billion, down from RMB 4.3 billion, after deducting RMB 1.6 billion in net proceeds from the C-REIT transaction. Despite higher organic CapEx, GDS anticipates its cash flow before financing to be near breakeven in 2025, a testament to the effectiveness of its asset monetization strategy.

DayOne: International Expansion and Value Creation

GDS's international arm, DayOne (formerly GDSI), has emerged as a powerful growth engine and a significant value driver for shareholders. Deconsolidated as a subsidiary at the end of 2024 and now an equity investee, DayOne's performance has "far exceeded expectations." Its strategy is to pioneer new markets globally, enabling world-leading tech companies to scale efficiently with short lead times.

DayOne's growth trajectory is remarkable. In Q2 2025, it added a "phenomenal" 246 megawatts of new commitments, bringing its total committed power to over 780 megawatts. This follows 70 megawatts of new commitments in Q1 2025, which included securing anchor customer commitments for its Thailand project and establishing a presence in Finland. These new market entries are expected to add over 220 megawatts, pushing DayOne's total committed power to over 750 megawatts. DayOne is "well ahead of schedule to meet the target of 1 gigawatt of total power commitments within 3 years," with an internal target of at least 500 megawatts of new commitments annually.

The international segment's financial performance reflects this rapid expansion. DayOne's power utilized jumped from 143 megawatts at the end of Q1 2025 to 213 megawatts at the end of Q2 2025, contributing to staggering year-over-year revenue growth of 244% and adjusted EBITDA growth of 265% in Q2 2025. Its EBITDA margin in Q1 2025 was 31%, considered "quite remarkable" for a company that began generating revenue only five quarters prior, with expectations to reach industry benchmark levels as it scales.

DayOne is currently pursuing a Series C equity raise, and an IPO is targeted "within 18 months," which is expected to further unlock value for GDS shareholders. GDS Holdings has capped its capital allocation to DayOne at approximately $400 million, which has already appreciated to an implied value of $1.3 billion based on the Series B price, equivalent to approximately $6.75 per GDS ADS. This strategic separation allows DayOne to access international capital markets independently for its accelerated expansion, while GDS benefits from its equity stake.

Outlook, Risks, and the Path Forward

GDS's outlook is anchored by the sustained demand for AI infrastructure in China and the rapid expansion of DayOne. The company is maintaining its full-year 2025 revenue guidance of RMB 11.29 billion to RMB 11.59 billion (9.4% to 12.3% year-on-year increase) and adjusted EBITDA guidance of RMB 5.19 billion to RMB 5.39 billion (6.4% to 10.5% year-on-year increase), despite the deconsolidation of C-REIT assets. On a normalized basis, adjusted EBITDA growth for 2025 at the midpoint would be around 10.7%. A preliminary view for 2026 suggests adjusted EBITDA growth could be in the low teens, excluding further mega orders or asset monetization.

However, the investment thesis is not without risks. The primary short-term uncertainty revolves around the supply of AI chips in China. Customers are exploring options across imported and domestic chips, and the decision-making process is complex, leading to a "wait and see" period for large AI bookings. While GDS is confident in long-term AI demand and the potential for domestic GPU solutions to catch up within 12 months, this uncertainty could impact the timing of new orders. Additionally, discussions around new government regulations in China controlling AI data center expansion, potentially favoring State-Owned Enterprises (SOEs), present a dynamic to monitor. GDS, however, asserts that its existing 900 megawatts of powered land largely has obtained power energy quotas, mitigating the impact of new policies.

Despite these challenges, GDS is well-prepared. Its extensive land bank in Tier 1 markets, coupled with its proven ability to recycle capital, positions it uniquely to respond swiftly when chip supply uncertainties clear. The company's disciplined CapEx approach, focusing on high-quality, fast move-in orders, ensures efficient capital deployment.

Conclusion

GDS Holdings stands at a pivotal juncture, transforming from a traditional data center operator into a strategically agile and financially innovative powerhouse poised to capture the immense opportunities presented by the global AI revolution. Its dual strategy—deepening its dominance in China's Tier 1 markets with "AI-ready" infrastructure and leveraging its pioneering capital recycling mechanisms, while simultaneously fostering the explosive international growth of DayOne—creates a compelling investment narrative. The ability to unlock significant value through ABS and C-REIT transactions, coupled with DayOne's rapid expansion towards a 1-gigawatt commitment target and impending IPO, provides clear catalysts for shareholder value creation.

While the short-term landscape is shaped by AI chip supply dynamics and evolving regulatory considerations, GDS's foundational strengths—its strategic land bank, technological leadership in high-density data centers, and proven operational execution—position it favorably. The company's proactive financial management, aiming for deleveraging and near-breakeven cash flow before financing, further underpins its resilience. For discerning investors, GDS offers exposure to the high-growth AI infrastructure market, backed by a robust strategy, innovative financing, and a clear path to sustained value appreciation through both its core China business and its rapidly expanding international venture.