This data center stock will be a winner as Nvidia resumes China shipments, JPMorgan says

JPMorgan upgraded GDS Holdings to Overweight from Neutral, raising its price target to $46, anticipating a boost from Nvidia's resumed H20 chip shipments to China. The firm expects this will drive upside for GDS's domestic data center business, fueled by robust AI inference compute demand from Tier-1 cloud providers, exemplified by Alibaba's 150 MW order. Despite some potential oversupply in AI training compute, GDS has limited exposure, and its international business continues to show strong growth, contributing to broad Wall Street bullishness on the stock.

Analysis

JPMorgan has upgraded GDS Holdings to Overweight from Neutral and increased its price target to $46, implying approximately 22% upside from recent levels. The core catalyst for this bullish revision is the anticipated resumption of Nvidia's H20 GPU shipments to China, which is expected to directly stimulate GDS's domestic data center (DC) business. This outlook is supported by strong demand indicators from Tier-1 cloud providers, highlighted by a significant 150 MW order from Alibaba for AI inference compute in the first quarter of fiscal 2025. While the analyst acknowledges a potential for 'mild oversupply' in AI training compute capacity due to aggressive buildouts in certain remote regions, GDS's exposure to this specific market segment is viewed as 'very limited.' Furthermore, the company's international arm, known as DayOne, continues to demonstrate robust growth through expansion into new markets like Thailand and Europe, providing a diversified revenue stream that mitigates potential risks from GPU restrictions in other countries. The market sentiment aligns with this positive view, as evidenced by the stock's 90% rally over the past three months and a strong consensus with 17 of 18 analysts rating the stock a buy or strong buy.

Key Decisions for Investors

• Given the strong analyst upgrade and the direct catalyst from Nvidia's renewed shipments, investors may consider the stock's recent rally to have further justification and potential upside.
• Monitor the pipeline of AI inference compute orders from Chinese cloud providers, as continued deal flow similar to the 150 MW Alibaba order is a key indicator for validating the domestic growth thesis.
• Evaluate the performance of the international business, DayOne, as its expansion into new markets serves as a crucial growth driver and a hedge against potential volatility or oversupply in the domestic Chinese market.