We recently published a list of 10 High Growth IT Stocks To Invest In Now. In this article, we are going to take a look at where GDS Holdings Limited (NASDAQ:GDS) stands against other high growth IT stocks to invest in now.
The global IT services market is experiencing significant growth and is on track to grow at a compound annual growth rate of 9.5% from 2024 to 2030, as estimated by Grand View Research. This expansion is particularly pronounced in developing economies such as India and China, driven by the increasing adoption of cloud computing and advanced digital technologies.
Growth in this industry is driven by several factors, including increasingly stringent data privacy regulations and heightened concerns over cybersecurity, compelling enterprises to invest heavily in robust IT solutions. The widespread adoption of advanced technologies such as artificial intelligence, machine learning, and the Internet of Things has further fueled market demand. As businesses across various industries embrace digital transformation, they are turning to IT service providers to meet their evolving needs. The shift towards remote and hybrid work models has necessitated robust IT infrastructure to ensure seamless operations, especially for large enterprises. Cloud computing has emerged as a key driver of market growth, enabling businesses to migrate their critical operations to the cloud and leverage IT services to securely manage these environments. Additionally, the increasing adoption of software-as-a-service models has led to a surge in IT expenditures, as organizations seek to streamline their business processes and focus on core competencies.
Is The Tech Sector Still Booming?
On November 13, Keith Lerner, Co-Chief Investment Officer at Truist Wealth, and Mark Malek, Chief Investment Officer at Siebert Financial, appeared on CNBC and highlighted their outlook for the tech sector outlook.
Lerner expressed a continued preference for technology stocks, particularly those involved in software development. He noted that software companies are increasingly automating processes and driving efficiency across various sectors. This trend positions them well for future growth, even if there are short-term fluctuations in the market. Lerner highlighted that despite any potential pullback due to rising yields or inflation concerns, he views software stocks as having strong leadership potential.
Malek concurred with Lerner’s positive outlook on technology but emphasized a selective investment approach within this sector. He pointed out that ongoing supply chain issues are affecting the chip industry, which could impact performance in certain areas of technology. However, he maintained that significant opportunities exist within the AI ecosystem and other technology-related fields.
As the global IT services market continues to expand at an impressive pace, driven by technological advancements and increasing digital adoption, information technology stocks may be well-positioned to go higher. Given this context, we’re here with a list of 10 high growth IT stocks to invest in now.
Our Methodology
We used Finviz to compile an initial list of IT stocks with high 5-year compound annual growth rates. From that list, we narrowed our choices to 10 high-growth IT stocks that analysts were the most bullish on. The stocks are ranked in ascending order of analysts’ upside potential.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A top level executive looking out of a skyscraper window, symbolizing the strategic decisions taken by the company.
GDS Holdings Ltd. (NASDAQ:GDS)
5 Year Revenue CAGR: 24.86%
Average Upside Potential as of November 14: 12.12%
GDS Holdings Ltd. (NASDAQ:GDS) provides information technology and data center services and offers colocation, consulting, and managed services to its customers. It’s a leading data center operator in China. The company provides colocation, managed hosting, cloud, and consulting services to a range of clients, including cloud service providers, internet companies, financial institutions, and telecommunications companies.
The increasing adoption of AI is driving demand for data center capacity, and this company is well-positioned to capitalize on this trend. Its ability to deliver data centers in record time and its strong operational capabilities are key differentiators in the market. Its strong financial performance is heavily influenced by the successful execution of its international expansion strategy.
Its international business is experiencing strong demand, particularly in Southeast Asia. GDS International, a subsidiary of GDS Holdings Ltd. (NASDAQ:GDS), has very recently secured a significant investment of $1 billion from renowned investors, including Coatue Management and The Baupost Group. This investment will fuel the expansion of GDS International’s data center capacity in key markets across Asia Pacific, including Hong Kong, Singapore, Malaysia, Indonesia, and Japan.
With this investment, GDS International aims to capitalize on the growing demand for data center infrastructure driven by the increasing adoption of AI and cloud technologies. The company’s strategic focus on emerging markets and its strong track record of delivering high-quality data center solutions position it well to benefit from these trends.
Baron Opportunity Fund stated the following regarding GDS Holdings Limited (NASDAQ:GDS) in its Q3 2024 investor letter:
“In the most recent quarter, we re-initiated a position in GDS Holdings Limited (NASDAQ:GDS). GDS is a pan-Asia data center operator with 1.5 gigawatts of power capacity across approximately 100 data centers in and around “tier one” cities in mainland China (GDS Holdings or GDSH), as well as 1.0 gigawatts of power capacity in its rapidly growing Asia ex-China business (GDS International or GDSI). GDS develops and leases data center space (on a power reservation basis) to the top global technology companies such as Alibaba, Tecent, ByteDance, Microsoft, Google, and Oracle under long-term, contracted arrangements. We recently met with CEO/founder William Huang and CFO Daniel Newman in our offices and believe the best days for the company are ahead of it due to durable secular tailwinds in cloud adoption (early innings in Asia, which are lagging the U.S. and rest of the world), continued growth in data, increasing demand from AI applications, and global constraints on power availability yielding sustained pricing power in light of low available supply amid continued strong demand. On a sum-of-the-parts basis, we see a path for the business to be worth $45 to $55 per share in two to three years versus approximately $20 at recent market price. For GDSI, based largely on contracted customer commitments, we see cash flow growing from less than $50 million today to over $500 million over the next three years, with the opportunity to ramp towards $1 billion a few years after that. We value GDSI at $15 per share over the near term and $25 per share over the next four to five years. Regarding GDSH, we believe the mainland China data center business is at the doorstep of a growth inflection and see cash flow growing from about $700 million today to $1 billion over the next three years based on lease-up of its available power capacity. We value GDSH at $30 to $40 per share over the near term and remain encouraged that there will be several catalysts to further enhance value (including a structure to place certain stabilized data center assets into a listed REIT vehicle).”
Overall, GDS ranks 7th on our list of high growth IT stocks to invest in now. As we acknowledge the growth potential of GDS, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than GDS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.
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