VNET Group, Inc. (VNET) | The Buildout — AI Infrastructure

The Verdict

VNET is a carrier-neutral and cloud-neutral data center services provider in China. It builds, owns, leases and operates data center capacity and sells it as a service, largely in megawatts under long-duration contracts. Its AI exposure comes through wholesale IDC, where internet giants, cloud providers and AI-native companies reserve high-power, high-density capacity. It does not make AI models, chips or software; it supplies the physical space and power infrastructure those workloads require.

Earnings

In Q2 FY2026, VNET reported revenue of $408.4M on reported figures, with gross margin of 18.2% and EBITDA of $128.4M (31.4% margin). The company separately reported total net revenues of RMB2.78bn, +14.2% YoY, and adjusted EBITDA of RMB918.3m, +25.4% YoY. Wholesale IDC revenue was RMB1.10bn, +29.3% YoY and 39.8% of total revenue; the company also disclosed 345 MW of new wholesale orders in the quarter.

Management tone: Q2 prepared remarks were more expansive than Q1, and the framing escalated from 'a pioneer in AIDC' to 'standard setter and industry leader of digital energy infrastructure in the AI era.' The prepared remarks were delivered by text-to-speech, so Q&A is the stronger tone evidence. In Q&A, management answered directly on margin mechanics, pricing policy, reservation conversion and customer concentration, but deflected a direct question on Shandong Hi-Speed transaction progress.

Management Guidance

Management reiterated FY2026 total net revenues of RMB11.5–11.8bn, +15.6% to +18.6% YoY; adjusted EBITDA of RMB3.55–3.75bn; and CapEx of RMB10–12bn to support 450–500 MW of deliveries. No quarterly guidance was provided, and no 2027 CapEx or delivery target was given.

Trajectory

Revenue growth is decelerating while the contracted pipeline accelerates. Total revenue growth slowed to +14.2% YoY in Q2 2026 from +19.8% in Q1, and wholesale IDC revenue slowed to +29.3% from +58.1%. On reported figures, Q2 FY2026 gross margin was 18.2%, down from 22.9% in Q1. The company's adjusted cash gross margin was 41.8%, down from 45.0% QoQ and 43.6% YoY, on utility pass-through and a Q1 one-off. Adjusted EBITDA rose 25.4% YoY to RMB918.3m, and margin expanded to 33.0% from 30.1%. The pressure point is utilization: in-service wholesale capacity grew faster than utilized capacity, so utilization slipped to 73.9% from 75.7%.

The Model

The model projects FY+1 revenue of $1,710M and EBITDA of $537M (31.4% margin). For FY+2, it projects revenue of $2,120M and EBITDA of $700M (33.0% margin). The near term is anchored by the retained FY2026 guidance and the back-end-loaded delivery plan; FY+2 depends on converting the 862 MW order book and the over 1.2 GW of orders plus reservations into move-ins.

Projections are the median of 5 independent model runs. The model’s revenue sits 2.4% below analyst consensus.

Management reiterated FY2026 total net revenues of RMB11.5–11.8bn, +15.6% to +18.6% YoY; adjusted EBITDA of RMB3.55–3.75bn; and CapEx of RMB10–12bn to support 450–500 MW of deliveries. No quarterly guidance was provided, and no 2027 CapEx or delivery target was given.

What Could Go Right — and Wrong

Looking Ahead

Over the next 12 months, VNET plans to deliver about 333 MW in H2 2026 and about 252 MW in H1 2027, with the majority from the Wulanchabu campus. Management expects domestic chip supply to push move-in pace higher in H2 2026, and it plans a Q4 2026 strategy update. The expectation of no less than RMB2bn of REIT cash proceeds in FY2026 and the CATL share-purchase closing expected in Q4 2026 are also milestones.

Financials

Annual Summary

Key Ratios (Trailing)

The Company

VNET is a carrier-neutral and cloud-neutral data center services provider in China. It builds, owns, leases and operates data center capacity and sells it as a service. The AI-linked piece is wholesale IDC: large-scale, high-power capacity sold in megawatts under long-duration contracts to internet giants, large cloud providers and AI-native companies. VNET does not make AI models, chips or software; it supplies the physical capacity and power infrastructure those workloads need.

VNET is a Cayman Islands holding company with no material operations of its own; it conducts operations in China through PRC subsidiaries and VIEs, which it consolidates under U.S. GAAP. As of Q2 2026 it had 1,007 MW of wholesale capacity in service, with 96.3% of in-service capacity committed by customers, more than 3.5 GW of total Chinese Mainland capacity and about 500 MW of overseas resources secured. Greater Beijing and the Yangtze River Delta are the main wholesale regions; the Wulanchabu campus in Inner Mongolia is the lead development node.

Business Segments

Competitive Landscape

The FY2025 20-F names telecommunication carriers China Telecom, China Unicom and China Mobile; carrier-neutral providers SINNET, GDS and Chindata; cloud providers AWS and Alibaba Cloud; VPN providers Citic Telecom CPC, NOVA and HKT; and the in-house data centers of Baidu, Tencent and Alibaba as competitors. The filing also says VNET competes with some of its third-party suppliers, primarily the three carriers, for certain telecommunication resources.

Supply Chain

VNET buys bandwidth, cabinets and equipment from a concentrated supplier base, then sells data center capacity to internet, cloud and enterprise customers. The three Chinese carriers are both its largest suppliers and its competitors.