Investing.com-- UBS analysts said concerns over AI investment sustainability in China’s data center sector are "overdone," with valuations now attractive after a 40-60% correction from February peaks.

In a research note, the bank maintained "Buy" ratings on GDS Holdings Ltd (NASDAQ: GDS ) and VNET Group (NASDAQ: VNET ), citing stable fundamentals and potential catalysts like data center REITs.

"We believe concerns were overdone as valuation fell back to pre-DeepSeek level but hyperscalers are committed to AI and IDC operators are delivering projects as scheduled with potential new orders driven by AI based on our industry checks," UBS analysts wrote.

UBS trimmed price targets for GDS to $45 from $58 and VNET to $12.80 from $23, citing macroeconomic uncertainties, but reiterated GDS as its top pick.

The bank expects GDS to benefit from new AI-driven orders and its tier-1 infrastructure, while VNET’s wholesale business could deliver 56% EBITDA growth through 2026.

Key takeaways from industry checks include manageable impacts from U.S. chip bans, optimized data center locations near tier-1 cities, and rising demand for high-power-density racks, analysts said.

UBS also noted that REIT approvals for GDS could provide valuation support.

"Progress in AI monetization and the possible launch of IDC REITs should support a valuation re-rating, in our view," the analysts wrote, projecting a sector EBITDA CAGR of 20% through 2026.

Downside risks include weaker-than-expected AI demand or regulatory hurdles, UBS added.