RBC cuts GDS rating after stock’s strong rally

Investing.com -- RBC Capital Markets lowered its rating on GDS Holdings (NASDAQ:GDS) to Sector Perform from Outperform given a strong year-to-date rally in the stock, with a view that the shares are now fully valued.

The brokerage raised its price target on GDS to $37, reflecting a "slightly less conservative EBITDA/MW assumption" and strong operational prospects.

RBC noted that GDS shares have outperformed its coverage universe this year. In China, domestic hyperscalers have increased capacity demand for both existing growth needs and AI-related initiatives over the past month. Internationally, the firm updated its valuation assumptions, raising expected EBITDA/MW for DayOne's committed capacity to $1.5 million from $1.0 million.

Despite the improved outlook, RBC maintained its financial estimates based on GDS’ third-quarter 2024 structure, which consolidates DayOne. It also incorporated GDS’ 35% equity ownership in DayOne following its Series B funding round in the fourth quarter of 2024.“We are lowering our rating on GDS to Sector Perform following an impressive run-up in the shares YTD and in particular over the past two weeks,” analyst at RBC Capital Markets said.