By Adam Clark

Looking for the hottest play on the artificial-intelligence boom this year? VNET Group might not be a household name, but its U.S.-listed stock has more than tripled in value already this year.

VNET is a Chinese data-center operator. Investors are betting it will benefit from a spending spree on cloud-computing infrastructure from the likes of TikTok-owner ByteDance and e-commerce company Alibaba.

Those hopes were given another boost on Thursday, when Alibaba said it expects its investment in cloud computing and AI infrastructure in the next three years will exceed that of the past decade. Analysts at Jefferies put that at more than $40 billion over the period.

VNET's American depositary receipts , or ADRs, were up 8.3% at $15.90 in early trading Friday, adding to a more than 200% gain since the start of the year. Shares of peer GDS Holdings was climbing 4.1%, having more than doubled in 2025 so far.

"The most straightforward trickle-down positive [from Alibaba] is data centers. VNET risk-reward is attractive here. Despite the rally, it's the cheapest around," wrote Jefferies equity sales specialist William Beavington.

VNET doesn't get a lot of Wall Street attention, but Jefferies analysts have been fans for a while. The company was featured on the investment bank's global list of top picks in January, citing a wave of infrastructure demand from Chinese cloud-computing companies.

At this point it's worth some words of caution. Chinese tech stocks have rocketed before, only to crash in the wake of a regulatory crackdown. VNET's ADRs traded as high as $41 in mid-2021, before collapsing to below $2 apiece early last year. VNET's latest rally has already taken its shares past the Jefferies target price of $10.73.

There's no guarantee that Beijing's current benevolent attitude to tech champions such as ByteDance, Alibaba Group Holding, and Tencent will continue, however, and VNET's fortunes are closely tied to its customers. At the moment those companies can buy hardware such as Nvidia's H20 AI chips to install in VNET's data centers, but that could change in future under U.S. or Chinese policy.

VNET has also had a volatile ownership situation. Its founder Josh Sheng Chen last year withdrew an outstanding offer he had made in September 2022 to take the company private. That came after government-owned Shandong Hi-Speed Holdings Group acquired $299 million worth of new shares to become the company's largest shareholder.

As is the case with dozens of Chinese entities listed on U.S. exchanges, foreign investors who buy ADRs in VNET are buying shares in a shell company based in the Cayman Islands, to which the operating entity pledges its cash flows and profits.

Write to Adam Clark at adam.clark@barrons.com

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February 21, 2025 10:49 ET (15:49 GMT)

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