ASUS Q1 Operational Efficiency Beats Expectations; AI Servers Accelerate but PC Demand May Be Curbed

Overview

This research report is Goldman Sachs' review of ASUS's (2357.TW) 1Q26 earnings and recent operational performance. The report notes that while ASUS's April revenue declined 5% month-over-month, it exceeded expectations by 36%, primarily driven by the upgrade of the PC product mix towards higher-value segments, customer pull-in ahead of rising memory costs, and the accelerated volume ramp-up of AI servers. Q1 operating profit exceeded expectations by 34%, reflecting the company's continuous improvement in operational efficiency. Goldman Sachs has raised its earnings forecasts and target price for the next three years but maintains a 'Neutral' rating, given that short-term PC market demand may have peaked and current valuations already reflect most of the positives.

Core views

Core views revolve around the structural adjustment of the PC business and the strong growth of AI servers. Regarding the PC business, although Q1 unit shipments were strong, this was primarily due to customer pull-in to cope with rising memory costs, which may suppress demand in subsequent quarters. Therefore, Goldman Sachs expects mild year-over-year monthly revenue growth for the remainder of 2026. Management aims to offset the slowdown in end-demand by driving the product mix towards higher-value products (such as AI PCs, gaming laptops, and commercial PCs), expecting full-year 2026 PC unit shipments to remain flat while revenue continues to grow due to structural optimization. The server business is the primary growth engine. Management remains optimistic about AI server revenue growth in 2026, driven by diversified end-customer demand: including major global cloud service providers (CSPs) raising their 2026 cloud capex, rising demand for AI infrastructure from Neo Cloud customers, and increased AI deployment among enterprises and research institutions. Additionally, agentic AI and inference tasks are supporting demand for general-purpose servers. Regarding financial forecasts and valuation, based on the better-than-expected Q1 results and April revenue, Goldman Sachs has raised its 2026-2028 revenue forecasts by 10%-11% and net income forecasts by 5%-8%. However, due to the increasing proportion of the AI server business and rising raw material costs, gross margin forecasts were slightly lowered by 0.6-0.7 percentage points; meanwhile, given stronger-than-expected operational efficiency, opex ratio forecasts were lowered. The target price is based on 11.3x the expected 2027 P/E ratio (previously 10.4x), raising the 12-month target price from TWD 611.0 to TWD 690.1. The current stock price trades at approximately 11.0x the expected 2027 P/E, indicating that most positive factors are already priced in.

Analysis framework

Goldman Sachs employed a typical 'bottom-up' fundamental analysis approach, combining macro industry trends with company-specific micro operational data. First, by breaking down revenue drivers, the impact of 'volume' versus 'price' was distinguished. For instance, it was identified that the April revenue beat was not solely due to an explosion in demand but included the unsustainable factor of 'pull-in,' leading to a cautious outlook for second-half demand. Second, using margin analysis, the operating profit beat was attributed to improvements in the operating expense ratio (opex ratio) rather than pure gross margin expansion, thereby more accurately assessing the company's internal management efficiency. Finally, at the valuation level, a relative valuation method (PE Ratio) was adopted, referencing the average valuation levels of branded peers, and dynamically adjusting the target P/E multiple based on the company's future net income growth (NI YoY) and operating profit margin (OPM). This method emphasizes the alignment between growth and earnings quality.

Methodology notes

• Valuation MethodPE/PEG valuation

  Determine target PE based on the ratio of peer average P/E to future net income growth and operating profit margin

  The report not only looks at static PE but also combines expected 2028 net income growth and operating profit margin to dynamically adjust the target PE multiple (from 10.4x to 11.3x). This is a more granular relative valuation method that better reflects changes in the company's earnings quality.

• Industry/Sector Analysis FrameworkVolume-Price Split

  Distinguish the contribution of shipment volume versus product mix/unit price to revenue

  The report explicitly states that PC unit shipments are expected to be flat, but revenue growth relies on product mix upgrades (shifting towards high-value AI/commercial PCs). This separation of volume and price aids in judging the sustainability of growth.

• Event Trading & Behavioral Finance

  Supply Chain Pull-in Effect Analysis

  The report identifies customer behavior of stocking up early due to rising memory costs and points out that this behavior will cap demand in following months. This is a common cyclical volatility analysis logic in the semiconductor and hardware industries.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• ASUS (2357.TW)

  Beneficiary, AI server volume ramp-up and PC premiumization transition

  Strengths

  Continuously improving operational efficiency, strong AI server demand, solid upstream supply chain relationships

  Weaknesses

  PC end-demand suppressed by memory costs, short-term vacuum period following demand front-loading

  Comparison

  Compared to peers, ASUS has a higher degree of customer diversification in the AI server sector

  Risks

  PC market recovery falls short of expectations, AI server ramp-up slower than expected

Key data

• April Revenue PerformanceDown 5% MoM, 36% above expectationsDriven by PC product mix upgrades, pull-in, and AI server volume ramp-up
• Q1 Operating Profit Variance34% above Goldman Sachs' expectationsPrimarily due to lower-than-expected opex ratios
• 2026-2028 Net Income Forecast AdjustmentRaised 8% / 5% / 7%Due to increased revenue and improved operational efficiency
• 2026-2028 Revenue Forecast AdjustmentRaised 11% / 10% / 10%Mainly due to increased contribution from AI servers
• Target PriceNT$690.1Previously NT$611.0, based on 11.3x 2027E PE
• Current Valuation11.0x 2027E PERoughly in line with the target multiple of 11.3x

Impact & implications

The report believes that ASUS is successfully executing its strategy of transitioning to higher-value products, and AI servers will become the core growth driver in the coming years, offsetting weakness in the traditional PC market. However, in the short term, supply chain cost pressures (memory, CPU) and demand front-loading caused by customer stocking behavior may lead to weakened growth momentum in the second half of 2026. For investors, the current stock price has already fairly reflected these positive changes, leaving limited upside, thus suggesting a wait-and-see approach or neutral allocation.

Risks

• PC market growth stronger or weaker than expected
• AI and gaming PC growth faster or slower than expected
• AI server volume ramp-up significantly faster or slower than expected

What to watch

• Whether PC revenue slows in subsequent months as pull-in ends
• Actual delivery pace of AI servers in 2H26
• Trends in raw material costs such as memory and CPU and their impact on gross margins