On Friday, BofA Securities updated its outlook on GDS Holdings (NASDAQ: NASDAQ:GDS) stock, a leading developer and operator of high-performance data centers in China. The firm increased its price target on the stock to $12.40, up from the previous $10.40, while reiterating a Buy rating.
The revision in the price target reflects a more optimistic view on the company's growth prospects. This optimism is based on a faster-than-anticipated ramp-up of the company's international capacity and a slight improvement in demand from China, attributed to the recovery of the internet sector's growth expected in 2024 and 2025. Additionally, substantial capital expenditures by cloud service providers and internet companies are seen as positive indicators.
The firm's analyst noted that demand driven by artificial intelligence (AI) could become more significant starting next year, as AI applications broaden. In anticipation of these developments, BofA Securities has raised its adjusted EBITDA estimates for GDS Holdings for the fiscal years 2024 to 2026 by 1-2%.
In terms of valuation, the price objective was adjusted to $12.40 in U.S. currency and HK$12.2 in Hong Kong dollars, based on 13 times the 12-month forward enterprise value to EBITDA (EV/EBITDA) ratio, which remains unchanged from the previous valuation method. The firm maintains its Buy rating on the stock, citing an expected acceleration in top-line growth driven by the swift expansion of overseas capacity and the anticipated recovery in demand within China's market.
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