GDS Holdings: Capitalizing on China's Data Center Boom and the C-REIT Catalyst

China's data center industry is surging, driven by AI adoption, cloud computing, and the nation's push for digital infrastructure. At the forefront of this transformation is GDS Holdings (NASDAQ: GDS; HKEX: 9698), a leader in high-performance data center development. With Q2 2025 earnings on the horizon and a newly listed China Real Estate Investment Trust (C-REIT), the company is poised to leverage both demand tailwinds and institutional capital inflows. This article evaluates GDS's growth trajectory, strategic initiatives, and the implications of its C-REIT for long-term value creation.

Q1 2025: A Foundation for Sustained Growth

GDS's Q1 2025 results underscore its resilience and strategic execution. Revenue rose 12% year-over-year to RMB2.72 billion ($375.3 million), while adjusted EBITDA surged 16.1% to RMB1.32 billion ($182.4 million), with a margin of 48.6%—a 1.7% improvement from the prior year. This performance was bolstered by a one-time gain of RMB1.06 billion ($145.7 million) from its first asset-backed securities (ABS) transaction, which deconsolidated assets and improved financial flexibility.

The company's utilization rate of 75.7% as of March 31, 2025, reflects strong demand, particularly in Tier 1 markets. A landmark 152-megawatt hyperscale deal signed in Q1 highlights GDS's ability to secure large-scale contracts, with 900 megawatts of capacity earmarked for future developments. These metrics align with China's AI-driven infrastructure needs, where data centers are critical for training and inferencing workloads.

C-REIT Listing: A Strategic Catalyst for Institutional Inflows

On August 8, 2025, GDS's C-REIT (code 508060) began trading on the Shanghai Stock Exchange, marking a pivotal step in its capital-raising strategy. This listing provides a new asset class for investors and enhances liquidity, enabling GDS to recycle capital for debt reduction and expansion. The C-REIT's focus on high-quality data center assets in key economic hubs positions it to attract both domestic and international institutional investors seeking stable, long-term returns.

Institutional activity in Q1 2025 reveals a mixed but telling trend. While 76 institutions added shares, including SACHÉM HEAD Capital Management (4.2 million shares, $106.8 million) and Morgan Stanley (1.03 million shares, $25.99 million), 85 reduced holdings. Notably, BAMCO and ASPEX Management cut stakes by 54% and 38.9%, respectively. However, the C-REIT's launch has already drawn interest from ESG-focused funds and REIT specialists, who view its low-volatility cash flows and alignment with China's digital infrastructure goals as compelling.

Strategic Expansion: AI-Driven Infrastructure and Global Diversification

GDS's growth is not confined to China. Through its subsidiary DayOne Data Centers, the company is expanding into Southeast Asia and Europe, with 70 megawatts of new commitments in Q1 2025 and a target of 1 gigawatt in three years. This international push diversifies revenue streams and taps into AI-driven demand in markets like Thailand and Finland.

Domestically, GDS's focus on Tier 1 data centers—located in cities like Shanghai and Beijing—positions it to capture high-margin contracts with hyperscalers and cloud providers. The company's asset-light model, supported by the C-REIT and ABS transactions, ensures capital efficiency while maintaining operational flexibility. Analysts project that GDS's adjusted EBITDA could grow at a high-single-digit rate in 2025, with DayOne's margins potentially reaching industry benchmarks within two years.

Risks and Considerations

Despite its strengths, GDS faces challenges. Regulatory scrutiny of data center expansion in China, supply chain constraints for AI chips, and competition from state-backed rivals could temper growth. Additionally, the C-REIT's performance hinges on maintaining high occupancy rates and stable cash flows, which are sensitive to macroeconomic shifts.

However, the company's disciplined approach—prioritizing selective new bookings, operational efficiency, and strategic monetization—mitigates these risks. The C-REIT's listing also provides a valuation floor, as REITs typically trade at premiums to their underlying assets.

Investment Thesis and Outlook

With Q2 2025 earnings due on August 20, 2025, investors will scrutinize whether the company maintains its Q1 momentum. Consensus estimates project revenue of $2.83 billion and an adjusted EBITDA margin above 48%, but the absence of a recurring gain from the ABS transaction may pressure net income.

Historical data reveals that GDS's stock has often underperformed following earnings releases. From 2022 to the present, the stock price declined on average after earnings announcements, with a notable -26.52% drop on March 26, 2024—the largest single-day decline in this period. While the company's fundamentals remain strong, these results highlight the volatility investors may face around earnings events. The C-REIT, however, remains a key differentiator, offering a structural advantage to stabilize long-term value.

Analysts' median price target of $42.5 (from $37 to $53) reflects confidence in this trajectory. For investors, GDS offers exposure to China's AI-driven infrastructure boom and a REIT structure that balances growth with income. While near-term volatility is possible—particularly around earnings—the long-term case hinges on the company's ability to execute its dual REIT strategy and capitalize on global demand.

Conclusion

GDS Holdings is navigating a pivotal phase in its evolution. Its Q1 2025 results affirm its leadership in a high-growth sector, while the C-REIT listing provides a new avenue for capital and institutional support. As AI reshapes global infrastructure needs, GDS's strategic positioning—both in China and internationally—positions it to deliver outsized returns for shareholders. For those willing to ride the data center wave, GDS represents a compelling blend of growth, innovation, and capital discipline.