AI demand pushes VNET past the gigawatt mark
- Wholesale capacity passed one gigawatt in Q2 2026.
- VNET secured 862 megawatts of wholesale orders year-to-date in 2026.
- The company secured 500 megawatts of overseas land resources.
- CATL is partnering with VNET to build a green compute energy ecosystem.
- High utility costs and expansion expenses are pressuring profit margins.
Gigawatts, growth, and gross margins
VNET is riding a massive wave of AI infrastructure demand. In the second quarter of 2026, the company reached a new milestone when its wholesale capacity in service crossed one gigawatt. Total year-to-date orders reached 862 megawatts, proving that large customers are hungry for space. VNET is also looking beyond China, securing 500 megawatts of overseas resources to expand its global footprint starting in Southeast Asia.
The bear case centers on the cost of this growth. Management expects to spend RMB 10 billion to RMB 12 billion on capital expenditures in 2026. Data centers require land, power, and expensive cooling equipment. Gross margins are already showing slight compression from higher utility costs, falling to 41.8% in the second quarter.
The key question is execution. VNET must fund its aggressive buildout without breaking its balance sheet. The new partnership with CATL to build an integrated compute energy ecosystem might help reduce power costs over time. But until those projects are finished, the company must manage high debt levels and the risks of building in new international markets.
Funding the AI capacity boom
VNET sells data center space, power, cooling, and network links. Customers sign long contracts to keep their servers running. The company generates highly visible recurring revenue, and core churn stays below 1%. Wholesale customers rent massive capacity blocks measured in megawatts, while retail customers rent smaller cabinets.
Building artificial intelligence data centers is extremely expensive. VNET cannot just use cash from operations to fund its massive pipeline. The company uses an asset-light strategy to recycle capital. It creates joint ventures, pre-REIT funds, and private REITs. This structure lets VNET sell mature assets to raise cash for new construction.
Overseas expansion introduces a new challenge. Construction costs outside China are much higher. VNET uses a cautious capital model to manage this risk. The company uses its own money only to buy land. It waits for firm customer orders before starting expensive mechanical and electrical fit-outs.
From cabinets to AI campuses
Wholesale IDC
This segment serves large AI and internet customers. Wholesale capacity crossed 1,007 megawatts in Q2 2026 and accounted for 39.8% of total revenue.
Retail IDC
Retail serves customers who need individual cabinets. Capacity stands at over 50,000 cabinets with a 64.5% utilization rate.
AI data center solutions
VNET upgrades sites for AI workloads. The Hyperscale 2.0 framework uses modular units to cut construction time by one-third.
Hybrid IT services
Hybrid IT bundles retail cabinet rentals with extra GPUs and software support. This platform targets smaller AI inference workloads.
Cloud and VPN services
These non-IDC services provide stable cash flows around the core data center business. They add revenue but grow much slower.
Wholesale drives the top line
The segment mix reflects Q2 2026 data. Wholesale IDC accounted for 39.8% of total revenue, confirming its new position as the primary growth driver.
What could break
CapEx outruns funding
High impact · High oddsVNET expects RMB 10 billion to RMB 12 billion of CapEx in 2026. That is a heavy bill for a company carrying a weak financial health profile. REIT listings help, but they need to keep working.
Utility costs compress margins
Medium impact · High oddsPower prices are rising, and VNET passes some but not all of these costs to customers immediately. Adjusted cash gross margin fell to 41.8% in Q2 2026 from 43.6% a year ago.
Overseas construction costs
Medium impact · Medium oddsVNET secured 500 megawatts of overseas land starting in Southeast Asia. Building outside China costs much more and involves unfamiliar regulations, testing management execution.
Signed orders move in too slowly
High impact · Medium oddsOrders only pay off when customers actually move their servers in. Wholesale capacity utilization was 73.9% in Q2 2026, meaning a significant chunk of capacity is built but not yet billing.
In one breath
What does VNET Group do?
VNET builds and runs data centers in China and internationally. It rents power, cooling, and space to large tech companies and smaller retail clients.
Why is AI important to VNET?
AI requires massive amounts of electrical power and specialized cooling. VNET is capturing this demand by building gigawatt-scale data center campuses for large internet customers.
What is the CATL partnership?
CATL and VNET are working together to build a green compute energy ecosystem. The goal is to combine data centers with advanced energy storage and zero-carbon power solutions.
Why are VNET profit margins falling?
Data centers consume enormous amounts of electricity. Rising utility costs in China are pressuring gross margins, which dropped slightly in recent quarters.
Sources and research notes
This page combines Finn's company research with public filings and other cited materials. The thesis is reviewed when material company information changes; Finn Scores use the latest available scoring data.
- Thesis reviewed
- August 30, 2026
- Score data
- September 27, 2026
- Reviewed by
- Shivam Bharuka
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