2Q26 Margin Beat, with AI Server Growth Visibility Extending Through CY28

Overview

This report reviews Quanta Computer Inc.'s 2Q26 results. The company's operating margin was better than feared, and AI server demand and planned capacity expansion over the next two years support a positive outlook; notebook demand is weakening in the second half, but this has not changed Morgan Stanley's positive investment view.

Core views

The core view is that AI servers remain the key growth driver: CY26 revenue is expected to grow by more than 100% year over year, while testing capacity is set to double in both CY27 and CY28, reflecting strong order visibility. Server operations account for more than 80% of revenue, and a richer AI product mix should support profit growth; however, the new-generation VR200 NVL72 rack has a lower margin than GB300, while notebook shipments are under pressure, limiting overall margin improvement.

Analysis framework

The analysis combines quarterly results with variances versus sell-side and market expectations, examining product mix, demand trends, capacity expansion, and profitability, while assessing investment appeal through relative valuation and a residual income model.

Methodology notes

• Valuation methodsResidual income model

  Base-case Valuation

  A residual income model is used, with key assumptions including a 9.0% cost of equity, 8.5% medium-term growth, and 3% perpetual growth.

• Relative ValuationPrice-to-Earnings Ratio

  CY27e P/E Comparison

  The company's CY27e P/E is approximately 11x, within its 6x to 18x range over the past three years; the report considers the valuation attractive.

• Earnings ComparisonExpectation Gap Analysis

  Margin Beat

  2Q26 operating margin was 10 basis points and 20 basis points above Morgan Stanley's and market forecasts, respectively.

Asset mapping & comparison

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

• Quanta Computer Inc. (2382.TW)

  Directly Covered Name

  Strengths

  Strong AI server demand, high server revenue mix, CY27 to CY28 capacity expansion improving order visibility, and valuation within an acceptable range.

  Weaknesses

  Weak notebook demand; VR200 NVL72 rack margin is lower than GB300; full-year operating margin is expected to remain broadly around 3.0%.

  Comparison

  CY27e P/E is approximately 11x, below the upper end of the 6x to 18x range over the past three years; 2Q26 operating margin exceeded analyst and market expectations.

  Risks

  AI server penetration or demand below expectations, hyperscale data center price competition, rising labor costs, and weak notebook and Apple Watch demand.

Key data

• 2Q26 Operating Margin3.3%, +50 basis points quarter over quarter10 basis points above Morgan Stanley's forecast and 20 basis points above market expectations.
• CY26 AI Server GrowthMore than 100% year over yearThe report states that this guidance is unchanged.
• Server Revenue MixMore than 80%AI servers account for 75% to 80% of server revenue; ASIC represents less than 10% of the AI server mix.
• CY26 Operating Margin GuidanceApproximately 3.0%Expected to be broadly similar to the CY26 first-half level.
• 3Q26 Notebook ShipmentsDown nearly 20% quarter over quarterFull-year CY26 notebook shipments are expected to decline by a double-digit percentage year over year.
• CY27/CY28 AI Testing CapacityDoubles annuallyIndicates AI server business visibility extending through CY28.
• Target Price and UpsideNT$385.00, 18%Based on the NT$325.00 closing price on August 13, 2026.
• CY27e P/E11.3xThe report cites approximately 11x, versus a 6x to 18x range over the past three years.

Impact & implications

The margin beat reduces near-term earnings concerns, while AI server growth and the capacity roadmap reinforce medium-term earnings expectations. Weak notebooks and lower margins for next-generation racks mean profitability may not improve linearly, but if AI shipments materialize as planned, the upgraded server mix could increase profit dollars and support a valuation re-rating.

Risks

• Notebook demand may be weaker than expected, with 3Q26 shipments expected to decline nearly 20% quarter over quarter and full-year shipments potentially falling by a double-digit percentage year over year.
• Apple Watch demand may fall short of expectations.
• Rising labor costs and weaker-than-expected sales may weigh on margins.
• Intense price competition in the hyperscale data center market may compress profitability.
• AI server penetration, orders, or demand growth may be below expectations.
• The new-generation VR200 NVL72 rack has a lower margin than GB300, potentially weighing on product-mix margins.

What to watch

• The pace at which AI server consignment business increases within the product mix in 3Q26.
• Delivery against guidance for CY26 AI server growth of more than 100% year over year.
• Execution of the CY27 and CY28 AI testing-capacity doubling plans and associated order visibility.
• The extent of notebook shipment declines and signs of demand recovery.
• Changes in the VR200 NVL72 and GB300 product mix and their impact on margins and profit dollars.
• Whether operating margin can remain around 3.0% and improve following AI business expansion.