UBS names GDS, VNET top China IDC picks with 25% CAGR forecast

UBS said China's internet data center industry is at a demand inflection point, naming GDS Holdings and VNET Group as top picks.

"China is well positioned to support AI-driven demand with a highly integrated nationwide power grid and telecommunications network," UBS said in a research report.

The bank raised its net additional utilized IT load projections for 2026 through 2028 by 4 percent, 25 percent and 22 percent, respectively, to 4.0 gigawatts, 5.8 gigawatts and 6.7 gigawatts. Total utilized IT load is expected to reach 31 gigawatts by 2028, implying a compound annual growth rate of more than 25 percent.

Order backlogs at major cloud service providers have extended to the second half of 2027, supported by strong token demand and rising domestic chip production. UBS said key direct beneficiaries of AI are trading below their historical averages and peers, offering what it called a "highly attractive early-cycle investment opportunity."

The upgrade comes as China's data center sector faces a valuation discount due to weak market confidence in order execution and computing supply, according to UBS. Faster-growing IDC operators have been assigned lower valuations despite improving demand signals and the potential easing of high-end computing supply constraints.

UBS data show the upward trend in IDC utilization remains resilient. With improved visibility on supply and demand, the bank said China's highly integrated power grid and telecommunications network give it a structural advantage in supporting AI infrastructure.

The call signals institutional conviction that China's AI infrastructure buildout is entering a sustained growth phase. Investors will watch for order announcements from GDS and VNET in the coming quarters as a test of the demand thesis.

This article is for informational purposes only and does not constitute investment advice.