GDS Holdings Ltd. (NASDAQ: GDS) had a wild ride on Thursday. The data center operator reported its second-quarter results, and at first glance, they looked like a miss. But then investors took a closer look at the AI-driven demand story and decided the future matters more than the past. Shares initially dipped, then reversed course, and were recently up more than 5%.

During the earnings call, CEO William Huang didn't mince words: "AI is transforming our business," he said, adding that sales momentum is "the strongest we have ever seen." That's a bold statement, but the numbers back it up.

Let's get the headline numbers out of the way. GDS reported earnings of 52 cents per share, well below the analyst estimate of $1.35. Revenue of $455.11 million also missed the $463.16 million consensus. But here's the thing: the company raised its full-year revenue outlook, and that's what got investors excited.

AI Demand Drives Bookings And Backlog

Revenue rose 6.5% year over year, while adjusted EBITDA increased 2.5%. Adjusted EBITDA margin slipped to 45.5% from 47.3% a year earlier. Not stellar, but the growth story is in the bookings.

GDS ended the quarter with nearly 20 billion Chinese yuan in cash. Net leverage stood at 4.7 times annualized adjusted EBITDA. That's a solid balance sheet for a company in expansion mode.

Total committed and pre-committed area increased 18.2% year over year to 784,802 square meters as of June 30. Utilized area rose 13.2% to 542,236 square meters. Area in service increased 10.8% to 684,977 square meters, and utilization improved to 79.2% from 77.5% a year earlier.

Here's where it gets interesting: GDS secured 260 megawatts of new bookings during the quarter and raised its full-year booking target to 1 gigawatt. That's a huge jump, and it's all thanks to AI. The company also secured 600 MW of additional reservations and expects more than 1 GW of new reservations in 2026.

Who's driving this demand? Major Chinese technology companies and emerging AI companies. First-half bookings were split roughly evenly between established and new markets, including Ulanqab, Horinger, South Wan and Zhongwei.

The backlog climbed to 757 MW from 450 MW at the start of 2026. Management expects it to exceed 1 GW by year-end, with average adjusted EBITDA estimated at 2.2 million Chinese yuan per megawatt. That's a lot of future revenue locked in.

GDS also recorded 145 MW of net move-ins during the first half and expects another 90 MW in the second half. That would bring full-year move-ins to about 235 MW.

GDS Raises 2026 Revenue Outlook

Looking ahead, GDS raised its fiscal 2026 revenue outlook to $1.866 billion to $1.910 billion from its previous forecast of $1.749 billion to $1.819 billion. The revised range compares with the analyst estimate of $1.840 billion. So even though Q2 was a miss, the full-year picture is brighter than expected.

The company also raised its 2026 capital expenditure forecast to 10 billion Chinese yuan from 9 billion Chinese yuan. New capacity is expected to cost about 20 million Chinese yuan per MW. GDS plans to fund projects with a mix of 60% debt and 40% equity at the project level.

And the growth isn't stopping there. Management expects move-ins to more than double in 2027, with most activity weighted toward the second half of the year. They see further growth in 2028.

So what's the takeaway? GDS is betting big on AI, and so far, the bet is paying off. The stock's reaction on Thursday suggests investors are willing to look past a quarterly miss if the long-term story is compelling. And with AI demand showing no signs of slowing, GDS might just be in the right place at the right time.

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