To The Moon

$VNET Group(VNET)$, is a leading Chinese internet data center (IDC) services provider.

It has shown remarkable growth, with its shares skyrocketing by: (see above)

• +334.17% over the past 6 months.

• +688.98% (staggering!) over the last year.

This phenomenal growth reflects artificial intelligence (AI)-driven demand for its data centers.

Focused primarily on China’s Tier-1 cities and surrounding areas, VNET’s data centers benefit from:

• Favourable supply-demand dynamics due to high internet traffic.

• Limited resources.

• Strong demand for data center facilities.

VNET caters to both retail and wholesale segments.

• Retail services offer scalable solutions ranging from single cabinet deployments to megawatt-scale setups, tailored to meet diverse customer needs.

• Wholesale services involve constructing and developing new data center sites according to customer specifications.

Strategic Position in Booming Market ?

China’s cloud computing and internet infrastructure industry is expanding at breakneck speed.

VNET is well-positioned to reap the benefits.

• Its (a) extensive data center footprint and (b) networking assets provide a strong foundation for continued expansion.

• Further, VNET maintains neutrality towards telecom carriers and cloud providers, giving it a unique advantage.

• This interconnected infrastructure of VNET makes it a crucial hub for data traffic.

Its proprietary routing technology ensures fast and reliable data transmission by automatically selecting the most efficient network route.

This level of interconnectivity enhances performance and reliability.

Financials & Expanding Capacity.

Thanks to strong demand, VNET continues to deliver solid financials.

During Q3 2024, it delivered a +12.4% YoY increase in net revenues.

• This growth reflects the rapid expansion of its wholesale IDC business.

• At the same time, its focus on cost management and efficient resource allocation is driving its profitability.

It’s wholesale segment, in particular, has been a key growth driver for VNET.

• Net revenues from this division skyrocketed by an impressive +86.4% YoY due to surging demand for data center solutions.

• Given the favourable operating environment, the company is expanding its wholesale capacity, which positions VNET well to capture the growing demand.

• Further, the wholesale segment is witnessing a healthy utilization rate that has increased by +2.1% QoQ to 78%, demonstrating VNET’s ability to (a) drive customers to its platform and (b) absorb demand effectively.

• Moreover, its mature wholesale business hit a record-high utilization rate of 95.6%.

Retail segment has also been “holding steady”, with capacity in service and utilization rates maintaining stability.

AI Boom: Catalyst for VNET

VNet Financial Foundation.

VNET’s financial footing, positions it well for future growth.

With a solid cash position and an unused credit line, the company has the financial flexibility to support current operations and future growth initiatives.

Client Acquisition and Revenue Growth.

Moreover, its ability to attract high-quality clients remains a significant strength, as evidenced by six new order wins in Q3 2024, totaling 84 megawatts.

The new contracts provide a solid pipeline for continued revenue growth.

Capitalizing on AI-driven Demand.

Additionally, VNET is capitalizing on increasing AI-driven demand for high-performance computing power.

With AI adoption accelerates across industries, the need for advanced infrastructure to support AI model training and data processing soars.

Recognizing this shift, VNET has expanded its AI computing capabilities to align with market needs.

About 98% of its wholesale capacity in service is equipped to handle high-performance computing requirements, positioning the company well to capture higher demand.

Successful AI Strategy Implementation.

VNET’s efforts in this area are already paying off.

The company has secured approximately 300 megawatts in new orders, with nearly 90% dedicated to supporting AI workloads.

Furthermore, its deepened collaboration with clients allows it to offer customized solutions, that will support long-term growth.

Infrastructure Optimization and Financial Management.

Further, VNET is investing in cutting-edge cooling technology, high-density cabinet deployments, and innovative data center designs to optimize its infrastructure for future AI demands.

Beyond accelerating its growth, VNET is refining its cost structure and optimizing its working capital to maintain a strong financial position. Moreover, its emphasis on high-quality development, cost reduction, and improving efficiency will drive its earnings and cash flows.

Wall Street Rating.

Wall Street analysts remain optimistic, with a consensus “Strong Buy” rating on the stock.

However, after such a massive rally, a pullback could provide a better entry point for new investors.

My viewpoints: (mine only)

I was a little skeptical with such a glowing report on VNET.

So I did a bit of snooping around myself.

I found that there is “supposedly” another IDC leader in China - $GDS Holdings Ltd(GDS)$, that is also listed on the Nasdaq.

Stock Price comparison.

Based on past 6 months comparison, VNET has soared by +334.17% vs +121.43% for GDS.

In that sense, VNET provides more bang for your buck.

As of 06 Mar 2025, VNET is also more “pocket friendly” at $12.07 per share; while GDS costs $38.53 per share.

Quarterly earnings comparison.

As to whether GDS is a “better” company than VNET, I have my reservations.

This is because :

• While GDS showed higher revenue and adjusted EBITDA in absolute terms, VNET demonstrated profitability and higher growth rates in some metrics.

• GDS's higher adjusted EBITDA margin suggests better operational efficiency, but VNET's net profit contrasts with GDS's net loss.

Final Word.

VNET is not a new kid on the block.

Formally known as 21Vianet Group, Inc, it went public on 21 Apr 2011, listing on tech board - Nasdaq.

IPO price was $15 per share. Based on Thu, 06 Mar 2025 closing price of $12.07, it is a “steal”.

It had 2 peaks:

• In 2014 at $31.96 per share.

• In 2021 at $42.48, respectively.

Its drastic decline in 2021, 2022 and 2023 could be attributed to the followings:

Domestically, fallout from China’s extreme Covid-19 containment measures, destroying industries across the board.

Internationally, Biden administrations intensifying restrictions further curbed China’s growth:

• Semiconductor and AI restrictions. Lithographic machines restrictions.

• Entity List additions - prevented Chinese companies access to US technologies.

• Investment restrictions.

• Export controls on advanced computing and semiconductor manufacturing.

• Restrictions on US investments in Chinese AI, semiconductors, and quantum computing

Looking at VNET’s earnings per share from Q4 2022 to Q3 2024, there are equal number of losses per share and earnings per share.

However, things have started to lookup since Q1 2024. VNET has reported 3 consecutive quarters of earnings per share, implying net income was in the “green”.

With the Chinese government set to inject more stimulating measures to bolster both the economy and business sectors, things are looking up (for now).

Based on past 5 days’ performances: the following IT giant (by descending market cap) are mounting a comeback:

• $PDD Holdings Inc(PDD)$ has gained +5.75%.

• $Alibaba(BABA)$ has gained +6.91%.

• $NetEase(NTES)$ has gained +2.30%.

Is it time to reconsider red chip stocks now especially AI-related stocks like VNET, that is still “relatively” foreign and new to US market investors ?

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• Do you think GDS with a market cap of 9.661B and beta of 0.11, worth a 2nd look?

• Do you think VNET with a market cap of 3.895B and a beta of -0.19 is a better bet ?

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