1Q26 margins beat expectations; AI server expansion supports growth, but PC and graphics card cycle pressure limits a rating upgrade

Overview

This report is UBS's 1Q26 earnings review of Giga-Byte Technology. Revenue and margins in 1Q26 both beat expectations by a wide margin, driven by AI server demand, product-mix improvement, and a higher share of premium products. UBS therefore raised its 2026-2028 earnings forecasts and lifted its target price to NT$340. However, given the possibility that PC, motherboard and graphics card demand may slow in H2 2026, and the pressure from high component costs on hardware brand margins, the rating remains Neutral.

Core views

The main views are as follows: first, the AI server business remains the company's most important growth driver, with AI servers accounting for nearly 90% of server sales in 1Q26 and server revenue expected to grow 52% YoY in 2026 and another 20% in 2027. Second, the company is accelerating capacity expansion, targeting a doubling of server capacity in 2026, with the USA factory expected to begin deliveries by the end of 2Q26 and the new Taiwan plant expected to be completed in 3Q26. Third, near-term strength in the PC, motherboard and graphics card businesses is partly due to channel pre-buying and the RTX 50 launch cycle; as supply and demand normalize, discounts widen and memory costs rise, demand may weaken in H2 2026. Fourth, larger server scale supports growth, but GPU resale and system integration characteristics mean margins may still remain below the company average.

Analysis framework

UBS updates its earnings model by combining actual 1Q26 results, management guidance on capacity and demand, channel and pricing observations, UBS Evidence Lab research on GPU pricing trends, and revenue and margin forecasts by business segment. Valuation uses 2028E EPS and a P/E multiple approach, and tests server growth, PC/gaming demand and margin assumptions through upside, base and downside scenarios.

Methodology notes

• Valuation methodsP/E multiple valuation

  Estimate the target price using a 12x 2028E P/E

  The base target price of NT$340 is based on 2028E EPS of NT$29.32 and an approximately 12x P/E, a multiple aligned with global hardware peers and in the middle of the company's historical 5-25x range.

• scenario_analysisUpside/Base/Downside spectrum

  Upside, base and downside scenario valuation

  The upside scenario target price is NT$465 and the downside scenario target price is NT$215, with key variables including 2028E server sales growth, total revenue growth, gross margin, operating margin and EPS.

• earnings_revisionEPS forecast revision

  Earnings forecast upgrade

  UBS raised 2026/2027/2028 adjusted EPS by 37%/24%/15% to reflect stronger sales growth from 1Q26 outperformance and server capacity expansion.

Asset mapping & comparison

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

• Giga-Byte Technology (2376.TW)

  Research target; Taiwan-listed hardware brand and server supplier

  Strengths

  Strong AI server demand, plans to double 2026 server capacity, 1Q26 revenue and margins significantly above expectations, and an improved premium product mix.

  Weaknesses

  PC, motherboard and graphics card demand may slow in H2 2026; memory and component costs are rising; and server business margins are below the company average.

  Comparison

  UBS believes its valuation is about 12.4x/11.1x 2027E/2028E P/E, roughly in line with global hardware peers; hardware brands face a more challenging margin environment than upstream semiconductors and components.

  Risks

  AI server demand stagnation, supply chain bottlenecks, weaker-than-expected GPU and gaming PC demand, a soft PC market, inventory corrections, and intensifying margin pressure from price competition.

• AI server business

  Primary growth engine

  Strengths

  AI servers accounted for nearly 90% of server sales in 1Q26, driven by demand for HGX, GB platform, GB300 racks, Vera Rubin and general servers.

  Weaknesses

  GPU pass-through may dilute profit contribution versus the company average margin.

  Comparison

  Growth elasticity is stronger than in traditional PC, MB and VGA businesses.

  Risks

  If AI server demand stalls, or technical challenges and supply chain bottlenecks emerge, sales growth could fall short of expectations.

• MB/VGA and PC/gaming business

  Traditional core business and source of cyclical pressure

  Strengths

  Premium MB/VGA momentum held up in 1Q26, with higher ASPs offsetting lower shipments.

  Weaknesses

  After the RTX 50 launch, supply and demand are moving into balance and price discounts are widening; a 10-20% increase in memory prices could curb PC demand; and there is no platform refresh.

  Comparison

  Compared with AI servers, this business has lower growth visibility in H2 2026.

  Risks

  Demand may fall after channel pre-buying, graphics card prices may weaken, inventory costs may rise, and overall demand could soften.

Key data

• 1Q26 revenueNT$105bnUp 60% YoY and 18% QoQ, above the market's expectation of 10.5% QoQ growth.
• 1Q26 gross margin12.0%Above UBS and market expectations of around 10%, supported by an improved premium product mix.
• 1Q26 operating margin7.1%Up 2.8 percentage points QoQ.
• 1Q26 EPSNT$7.86Up 69% YoY and 77% QoQ, 68% and 55% above UBS and market expectations, respectively.
• 2026 capex guidanceNT$2.5-2.7bnAbove the prior guidance of NT$2.0-2.5bn, to support server capacity expansion.
• 2026E server sales growth52% YoYDriven mainly by B300 HGX and GB300 racks.
• 2027E server sales growth20% YoYSupported by HGX, Vera Rubin and general server demand.
• 2026/2027/2028E adjusted EPS upgrade37% / 24% / 15%Reflects stronger sales growth from the earnings beat and capacity expansion.
• Target priceNT$340Based on approximately 12x 2028E P/E.
• Upside/base/downside valuationNT$465 / NT$340 / NT$215Corresponding to stronger, base and weaker assumptions for PC/gaming demand, server momentum and margins.
• Forecast total return7.5%Comprises 4.1% price upside and 3.3% dividend yield.

Impact & implications

The report's stock implication is neutral: near-term results and AI server capacity expansion confirm growth elasticity and support a higher target price; however, the current valuation already reflects much of the benefit from PC product-mix optimization and pull-ins, while softer H2 2026 demand, elevated memory costs and dilution from server margins may limit further re-rating. For the supply chain, UBS prefers upstream CPUs, memory and components that benefit from shortages and have a more accretive margin profile; by contrast, hardware brands are in a more challenging part of the margin cycle.

Risks

• AI server demand stagnation, technical challenges or supply chain bottlenecks causing server sales to underperform expectations.
• Weaker GPU and gaming PC demand, leading graphics card sales to miss expectations.
• A sluggish PC market causing the motherboard replacement cycle to slow.
• Memory and component costs remaining elevated, compressing hardware brand margins.
• Price competition or inventory corrections intensifying margin pressure.
• After the RTX 50 launch cycle, supply and demand balance and wider price discounts could cause graphics card demand to weaken in 2026.
• The technology sector carries high volatility risk from rapid technological change, intensifying competition and macro-cycle exposure.

What to watch

• Execution progress on the plan to double server capacity in 2026, especially the USA factory delivery by the end of 2Q26 and completion of the new Taiwan plant in 3Q26.
• The pace of demand for the B300 HGX, GB300 racks and Vera Rubin platforms.
• Whether AI server revenue growth can reach 52% in 2026E and continue to grow by 20% in 2027.
• Whether server business margins remain below the company average and whether scale gains can translate into operating leverage.
• Whether H2 2026 PC, motherboard and graphics card demand slows as pre-buying fades.
• Whether memory prices and other component costs stay high and are passed through into end prices by 10-20%.
• Changes in RTX 50 GPU supply and demand, price discounts and residual demand.
• The extent to which the upgraded 2026/2027/2028E EPS forecasts are realized.