Is GDS Holdings' 79% net profit margin in the first quarter just "paper wealth"?
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On May 20, GDS, the leading domestic IDC company, released its financial results for the first quarter of 2026.
On paper, this financial report was explosive: net revenue increased by 23.6% year-on-year to 3.367 billion RMB; net profit surged an astonishing 247.1% year-on-year to 2.652 billion RMB, with a single-quarter net profit margin reaching an incredible 78.8% (28.1% in the same period of 2025); adjusted EBITDA grew 47.2% year-on-year to 1.949 billion RMB.
However, upon closer review, it is clear that this profit feast did not stem from a leap in core business operations, but rather from a “paper” windfall brought by the spin-off of overseas business and capital maneuvers.
Stripping away the capital operations, GDS’s true color remains that of a capital-intensive infrastructure service provider struggling to find a balance between capital and scale in the AI era.
The most eye-catching net profit of 2.652 billion RMB in the financial report was not mainly supported by domestic data center rental income, but stemmed from GDS’s equity operations in its international business platform DayOne (formerly GDS’s overseas business).
At the beginning of 2026, DayOne announced the completion of its Series C financing totaling $2 billion, raising its post-investment valuation to $9.4 billion. Taking this opportunity, GDS entered into an agreement with DayOne to sell $385 million worth of common stock to DayOne.
Financial details show that due to DayOne’s fundraising dilution and this partial equity sale, GDS recognized a high investment income under the equity method of 2.136 billion RMB in the first quarter.
If this massive “one-off item” is excluded, GDS’s fundamentals present a completely different picture: Q1 core net revenue was 2.938 billion RMB, up 7.9% year-on-year; adjusted EBITDA excluding the one-off item was 1.43 billion RMB, up 8.0% year-on-year.
This is GDS’s real current development pace: saying goodbye to the early years when the cloud computing boom saw over 30% surges, and entering a phase of steady single-digit core business growth.
Although financial indicators were magnified by capital operations, GDS’s actual business expansion in the first quarter did show some highlights.
From the operational data: as of March 31, 2026, the company’s signed and pre-signed total area reached 725,000 sqm, up 11.7% year-on-year; billing area was 521,000 sqm, up 12.7% year-on-year; operating area was 674,000 sqm, up 10.4% year-on-year. The billing area grew faster than the operating area, and the overall rack ratio was 77.3%, indicating the company’s ability to absorb existing assets is steadily improving.
Notably, management revealed at the earnings call that net new orders in the first quarter reached about 200MW, setting a record high. This confirms the current strong demand for computing power infrastructure brought by large model training and AI base construction.
However, the heat on the demand side has not changed the IDC industry’s commercial nature. In Q1 2026, GDS’s revenue cost reached 2.236 billion RMB, up 7.6% year-on-year, mainly due to continued new data center project delivery. Depreciation, amortization, and high electricity costs continue to relentlessly squeeze gross margins.
AI-driven demand for high-power racks certainly adds incremental volume, but how to convert this demand into greater pricing power and higher gross margins has yet to show a qualitative leap in the financial statements.
Looking through the Q1 financial report, it is less a business war report than a brilliant capital defense by the CFO.
IDC is a cash-burning beast. GDS reiterated in its financial report its guidance for 2026 full-year capital expenditure, maintaining it at around 9 billion RMB. Under the pressure of high capital expenditures and a heavy debt structure, replenishing cash flow is the top priority for GDS’s executive team.
By partially selling its DayOne equity, GDS not only recovered about 95% of its principal invested overseas, but also completed a $300 million convertible preferred stock placement in Q1. These two combined capital moves directly injected nearly $700 million of liquidity into GDS.
This high-level capital maneuvering of offloading overseas assets to strengthen its domestic base is highly skillful. It substantially reduced the group’s overall asset-liability ratio, increased the cash cushion, and allowed GDS to continue expanding high-performance data centers in the domestic market to seize the AI opportunity, without highly dilutive equity financing in the secondary market.
All in all, GDS’s 2026 Q1 scorecard was a major victory for financial operations, not a turning point for a breakout in core business. Management is clearly aware of this, and despite Q1’s apparent high growth, the company did not raise full-year guidance but maintained its forecasts for total income at 12.4 to 12.9 billion RMB and adjusted EBITDA at 5.75 to 6.0 billion RMB.
Over the next few quarters, as one-off gains exit the earnings statement, GDS’s financial metrics are bound to return to normal. For investors and industry observers, this capital feast has ended; the next focus is whether GDS, now holding ample “ammunition,” can quickly convert the Q1 record 200MW of new orders into actual billing area?
In 2026, as computing infrastructure increasingly shifts to AI computing centers, can GDS break out of the simple “space and utility sales” model and truly capture the premium of AI computing power? This is the core question that will determine its long-term valuation trend.
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