Goldman Sachs picks the Chinese cloud stocks to buy as internet users soar

Published Sun, May 16 20217:23 PM EDT

Lucy Handley @in/lucy-handley-b2b0a61a/@lucyhandley

Analysts at Goldman Sachs have picked three Chinese cloud stocks set for strong growth, with potential upsides to their share prices of more than 50%. China's online population surged during the pandemic and by the end of last year it had nearly 1 billion web users . Internet companies reaped the benefits; Douyin, the Chinese version of short-video sharing app TikTok, for instance, hit 600 million daily active users . But these web giants — TikTok-owner ByteDance, Alibaba , Microsoft and the like — rely on data centers to host their vast cloud computing operations, and Goldman has identified three stocks in the space with big potential. Goldman's buy-rated picks, all due to report earnings in the coming weeks, are: GDS , a data center giant that hosts the likes of Tencent Cloud and Alibaba's AliCloud, expanded from mainland China to Hong Kong in February. Goldman estimated its revenue for 2021 would rise 38% year-over-year, the strongest among its peers. The firm debuted on the Nasdaq in 2016 and added a secondary listing in Hong Kong in November. Goldman estimated a potential upside of 66.5% for the stock. GDS will report first-quarter earnings on May 19. Chindata had its initial public offering on the Nasdaq in October, raising $540 million with shares priced at the top end of their targeted range. The data center operator has been the major data center partner for ByteDance since 2015, Goldman highlighted. The analysts said Chindata is likely to expand: "We believe its dual competitive advantages – cost-effective build-out and strategic land bank reserves – pave the way for the company to potentially penetrate into a broader customer base." Goldman has a buy rating on the stock and estimated its upside potential is 55.5%. Chindata will announce results on May 20. Microsoft cloud operator 21Vianet is set to grow its data center business by 66% year-over-year in 2021, according to Goldman. The analysts also like the stock for its deal with Alibaba that it said would speed up estimated revenue growth from 1.6% on average between 2017 and 2019 to 24% between 2020 and 2022. Goldman is buy-rated on the stock and put its potential upside at 70.8%. The firm will report the week of May 24. On average, the Goldman analysts forecast its three stock picks would see revenue growth of 38% year-over-year on average for 2021. "While there has been some recent news around intensified pricing competition in the market, we believe that is a stand-alone case and are confident about our coverage companies' 2021E (earnings) guidance as well as the industry landscape going forward," the analysts, led by Tina Hou, wrote. — CNBC's Evelyn Cheng contributed to this report.

AliCloud's headquarters in Hangzhou, Zhejiang Province of China.

VCG | Visual China Group | Getty Images

Analysts at Goldman Sachs have picked three Chinese cloud stocks set for strong growth, with potential upsides to their share prices of more than 50%.

China's online population surged during the pandemic and by the end of last year it had nearly 1 billion web users. Internet companies reaped the benefits; Douyin, the Chinese version of short-video sharing app TikTok, for instance, hit 600 million daily active users.

But these web giants — TikTok-owner ByteDance, Alibaba, Microsoft and the like — rely on data centers to host their vast cloud computing operations, and Goldman has identified three stocks in the space with big potential.

Goldman's buy-rated picks, all due to report earnings in the coming weeks, are: