Pegatron (4938): AI-server expansion and seasonal launches support growth, but Goldman Sachs maintains Sell on valuation

Overview

This earnings preview assesses Pegatron's near-term revenue recovery from AI-server expansion, new smartphone launches and seasonal demand in broadband, IoT and game consoles. Goldman Sachs expects stronger sequential revenue into year-end but keeps its Sell rating because it considers the valuation stretched.

Core views

Goldman Sachs expects Pegatron's revenue to grow sequentially from September through December 2026. Its core growth drivers are the ramp-up of rack-level and baseboard-based AI-server shipments, a major smartphone customer's new-model launches, and peak-season demand for broadband, IoT and game consoles. The institution forecasts 3Q26E revenue of NT$305.389bn, up 18% year on year and 11% quarter on quarter, followed by 4Q26E revenue of NT$400.236bn, up 25% year on year and 31% quarter on quarter. It is positive on Pegatron's expansion beyond consumer electronics into AI servers and automotive electronics, citing growing demand from neocloud customers and enterprises. August revenue illustrates both the opportunity and the constraint. Revenue reached NT$88bn, up 34% year on year and 3% month on month, but was 12% below Goldman Sachs' NT$100.638bn estimate. The shortfall reflected continued pressure on PC and smartphone demand from high memory costs, even as AI-server shipments ramped strongly. August PC shipments fell 49% year on year to 0.40-0.45m units. The report also attributes weaker demand before September to the smartphone model transition: older-model demand declined while the new model was still ramping. The September launch is expected to support revenue in September and 4Q26. The earnings revisions are limited to the top line. Goldman Sachs cuts 2026E, 2027E and 2028E revenue estimates by 1% each, to NT$1,224.178bn, NT$1,407.188bn and NT$1,560.953bn, respectively, to reflect weaker consumer-electronics demand under high memory costs. Gross margin, operating margin and net margin forecasts are largely unchanged, as are net-income forecasts: 2026E net income is NT$17.357bn, 2027E NT$19.218bn and 2028E NT$20.861bn. Forecast diluted EPS is NT$6.43 for 2026E, NT$7.12 for 2027E and NT$7.73 for 2028E. The valuation remains the basis for the negative rating. Goldman Sachs derives its 12-month target price from a near-term P/E framework and raises the target multiple to 10.8x 2027E EPS from 10.6x, based on an updated correlation between forward earnings growth and P/E multiples among PC and server peers. The resulting target price rises to NT$76.9 from NT$75.5. Goldman Sachs notes that 10.8x sits within Pegatron's historical average and average-minus-one-standard-deviation forward trading P/E range, but maintains Sell because the NT$76.9 target is below the NT$91.30 closing price as of 24 September 2026, implying 15.8% downside.

Analysis framework

The report starts with monthly revenue performance and a September-to-December revenue outlook, linking shipment trends and seasonal product cycles to quarterly forecasts. It then revises revenue and earnings estimates for the consumer-electronics shortfall before applying a peer-based forward P/E valuation to 2027E EPS for the 12-month target price.

Methodology notes

• Valuation methodsP/E and PEG Valuation

  Near-term forward P/E valuation using a target multiple based on PC/server peers' earnings-growth-to-P/E relationship.

  Goldman Sachs applies a 10.8x multiple to 2027E EPS to derive Pegatron's 12-month target price, using peer correlations and the company's historical forward-P/E range as reference points.

• Industry AnalysisVolume-price decomposition

  Revenue outlook based on shipment ramps, product launches, seasonal demand and pricing mix.

  The report connects AI-server shipment growth and higher average selling prices, smartphone model timing, and seasonal demand in other products to monthly and quarterly revenue forecasts.

Asset mapping & comparison

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

• Pegatron (4938.TW)

  Primary covered company; expected to benefit from AI-server shipment expansion, new smartphone models and seasonal demand.

  Strengths

  AI-server ramp across rack-level and baseboard-based products; expansion into automotive electronics; seasonal broadband, IoT and game-console demand.

  Weaknesses

  PC and smartphone demand is constrained by high memory costs; August revenue missed Goldman Sachs' estimate.

  Comparison

  Target P/E is derived from the correlation between earnings growth and P/E multiples among PC/server peers.

  Risks

  Stronger-than-expected smartphone recovery, AI-server ramp-up or consumer-electronics demand.

Key data

• August 2026 revenueNT$88bnUp 34% year on year and 3% month on month; 12% below Goldman Sachs' estimate.
• August PC shipments0.40-0.45m unitsDown 49% year on year amid high memory costs.
• 3Q26E revenueNT$305.389bnUp 18% year on year and 11% quarter on quarter.
• 4Q26E revenueNT$400.236bnUp 25% year on year and 31% quarter on quarter.
• 2026-28E revenue revision-1% in each yearReflects weaker consumer-electronics demand; profit and margin forecasts are largely unchanged.
• Target P/E10.8x 2027E EPSRaised from 10.6x based on refreshed PC/server peer earnings-growth and P/E correlation.
• 12-month target priceNT$76.9Raised from NT$75.5; compared with NT$91.30 current price and 15.8% downside.

Impact & implications

The report sees AI-server expansion and the smartphone launch cycle lifting Pegatron's late-2026 revenue trajectory, but believes high memory costs will continue to limit consumer-electronics demand. The modest revenue cuts do not materially alter earnings estimates, while the target price remains below the current share price under Goldman Sachs' P/E-based valuation.

Risks

• A stronger-than-expected smartphone market recovery could improve Pegatron's results beyond the report's assumptions.
• AI-server shipments could ramp faster than Goldman Sachs expects.
• Consumer-electronics demand could be stronger than expected.