VNET Group (VNET) should be a major beneficiary of recent shifts in data center deployment in China, with the cloud computing and colocation services company poised to meet rising demand from hyperscalers over the next few years, analysts at Morgan Stanley said in a research report Thursday.

The analysts increased their price target for VNET shares to $14 from $11.70 while also reiterating their overweight rating for the stock.

VNET previously disclosed plans to spend 10 billion to 12 billion renminbi ($1.38 billion to $1.66 billion) on capital projects during 2025, roughly doubling its wholescale capacity over current levels by adding between 400 to 450 megawatts. The recent spinoff of selected assets into real estate investment trusts generated around a third of that total, the analysts said, with a $430 million offering overnight of 2.50% convertible notes due 2030 "the last piece of the puzzle" falling into place for the company.

The analysts raised their 2025 outlook for revenue and adjusted earnings before interest, taxes, depreciation and amortization by 4% and 5%, respectively, and by 8% and 7% for 2026 to reflect expected increases in bookings over the next two years. The new price target of $14 per share implies a multiple of 14 times the ratio of the company's projected enterprise value over 2026 adjusted EBITDA.

The Morgan Stanley analysts trimmed their forecasts for per-share earnings in 2025 and 2026, however, citing an expected rise in depreciation following the planned increase in capital spending coupled with higher interest costs as VNET takes on new debt to fund a portion of its upcoming expansion.

Price: 10.28, Change: -0.73, Percent Change: -6.59