GDS Holdings (GDS) is back in focus after DayOne Data Centers, which it backs, lined up banks for a potential U.S. IPO targeting up to a US$20b valuation alongside a Series C round above US$2b.

The DayOne IPO plans and recent Series C funding arrive after a sharp 90 day share price return of 57.14% and a 30 day share price return of 13.43%, while the 3 year total shareholder return of 119.83% contrasts with a 5 year total shareholder return of a 60.14% decline. This suggests momentum has picked up recently despite a weaker long run picture.

If GDS’s data center story has caught your eye, this could be a good moment to broaden your watchlist with our screener of 34 AI infrastructure stocks.

With GDS riding a sharp recent rebound, fresh capital coming in and a high profile DayOne IPO on the horizon, you have to ask: is the stock still undervalued or is the market already pricing in future growth?

Most Popular Narrative: 4.5% Undervalued

GDS Holdings closed at $46.12, slightly below a widely followed fair value estimate of $48.30, which is built on detailed long term growth and profitability assumptions.

The successful implementation of China's first data center ABS and C REIT IPOs has pioneered a pathway for GDS to repeatedly recycle capital at cap rates (and multiples) well above the company's own market valuation, allowing the company to fund new growth while improving leverage and enhancing ROIC, supporting stronger net earnings over time.

Curious how that capital recycling, revenue ramp and margin profile all feed into one fair value number and future earnings multiple assumptions? The full narrative connects those dots in a way the share price alone does not.

Result: Fair Value of $48.30 (UNDERVALUED)

However, there are still meaningful risks around high leverage and reliance on asset sales, as well as uncertainty on AI demand timing that could easily shake this narrative.

Another View: Rich Multiple Raises Questions

The 4.5% undervaluation story from fair value models contrasts with a very different picture when you look at P/E. GDS trades on 54.8x earnings, compared with 23.2x for the US IT industry, 37.6x for peers, and a fair ratio of 23.5x. This suggests far less room for error if growth or margins disappoint.

Build Your Own GDS Holdings Narrative

If you look at these numbers and reach a different conclusion, or simply prefer to test your own assumptions, you can build a tailored view of GDS yourself in just a few minutes, Do it your way.

A great starting point for your GDS Holdings research is our analysis highlighting 2 key rewards and 3 important warning signs that could impact your investment decision.

Looking for more investment ideas?

Before you move on, give yourself a better shot at finding the next opportunity by lining up a few fresh ideas that match your style.

• Target quality at a discount and see which companies our screener flags as 53 high quality undervalued stocks with strong underlying fundamentals.
• Prioritise resilience first and scan our picks for 84 resilient stocks with low risk scores that may better suit a steadier approach to returns.
• Get ahead of the crowd by checking out our screener containing 23 high quality undiscovered gems that are not yet widely followed but already show solid financial profiles.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.