China’s decision to commit $295b to data center and AI infrastructure has put VNET Group (NasdaqGS:VNET) in focus, with the stock reacting to expectations for higher demand across its hosting and cloud services.

The recent jump in VNET Group’s share price, including a 1-day share price return of 9.58% and 7-day share price return of 8.10%, comes after China’s $295b AI and data center plan refocused attention on high beta infrastructure stocks. This is occurring even though the 30-day share price return is down 16.89% and the year-to-date share price return is down 3.29%. At the same time, the 1-year total shareholder return of 24.44% and a very large 3-year total shareholder return of around 21x highlight how sentiment around long-term digital infrastructure demand has periodically surged, despite a 5-year total shareholder return that is down 55.68%.

If you are looking beyond VNET Group for more ways to consider positioning around AI infrastructure demand, now could be a time to scan 53 AI infrastructure stocks.

With VNET Group showing strong recent gains but a mixed longer term track record, and trading at a discount to analyst price targets, the key question is whether the stock is still undervalued or if markets are already pricing in future growth.

Most Popular Narrative: 43.9% Undervalued

With VNET Group last closing at $8.81 and the most followed narrative suggesting a fair value of $15.72, investors are weighing a sizable valuation gap against execution and balance sheet risks.

Successful execution of long-term capacity expansion plans with significant pre-committed projects (over 50% precommitment for capacity under construction) provides visibility into near-term and future revenue streams, supporting revenue growth and margin stability despite high ongoing CapEx outlays.

Want to see what is behind this valuation gap? The core of the narrative is ambitious revenue growth, a swing into profitability, and a premium future earnings multiple. Curious which specific assumptions need to hold for that fair value to make sense? The full narrative lays out the numbers and the trade offs in detail.

Result: Fair Value of $15.72 (UNDERVALUED)

However, there are still clear risks for VNET Group, including high leverage with sizeable debt maturities and the possibility that heavy data center spending outpaces actual AI driven demand.

Next Steps

Given this mix of optimism and concern around VNET Group, it makes sense to move quickly and review the numbers yourself. To see how the upsides and risks stack up in one place, take a close look at the 2 key rewards and 1 important warning sign.

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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.