Aspeed 1Q26 Results Beat Expectations, AI Drives Long-term Earnings Upgrade

Overview

Goldman Sachs released Q1 '26 earnings review for Aspeed (5274.TWO). Q1 revenue reached NT$3.147 billion, up 52% y-o-y, gross margin reached 69.2%, both exceeding market consensus and prior guidance. GS believes driven by Agentic AI demand, server CPU and BMC addressable market (TAM) will continue to expand for multiple years. Coupled with high ASP AST2700 product acceleration and baseboard supply improvement, Aspeed has entered a more structural growth track. Thus, GS upgrades 2026-2028 EPS by 7.0%/6.8%/10.0%, reiterates Buy rating, 12-month target price increased from NT$20,000 to NT$22,000, implying approx. 24% upside.

Core views

Performance: Aspeed 1Q26 revenue reached NT$3,147mn (y-o-y +52%, m-o-m +29%), significantly higher than prior guidance of NT$2.6-2.7bn, mainly driven by strong demand from US Cloud Service Providers (CSP). Gross margin of 69.2% was better than expected, but operating margin of 52.7% was slightly lower than expected, mainly due to increased employee stock incentive expenses linked to share price performance. Demand Outlook: Management maintained 2Q26 revenue guidance of NT$3.4-3.6bn (m-o-m +8-14%), gross margin 67-68%. GS believes actual performance is likely to further exceed expectations, based on continued strong BMC demand, price hikes starting April for most product lines (excluding AST2700 not yet mass-produced), and improved baseboard supply. GS forecasts 2Q26E revenue at NT$3,763mn (m-o-m +19.6%), gross margin 69.5%. Long-term Growth Drivers: GS is optimistic about Aspeed's structural growth through 2028, based on four factors: 1) AI Agent demand drives multi-year expansion of server CPU and BMC markets; 2) Greater momentum from increasing market share of AI ASIC platforms; 3) Accelerated penetration of high ASP AST2700 (ASP increased approx. 50-60% vs AST2600); 4) Further pricing potential due to tight baseboard supply. Shipments & Profit Forecasts: GS upgrades 2026-28 BMC shipment forecasts to 29.5mn/41.6mn/52.8mn units (y-o-y +56%/+41%/+27%), AST2700 share rises to 5%/25%/48%, driving blended ASP growth of 19%/24%/20%. Combining new product contributions (mini BMC, I/O expander, PFR IC) and easing baseboard bottlenecks after E-glass certification in H2 2026, GS upgrades 2026-28E EPS by 7.0%/6.8%/10.0%, forecast revenue y-o-y growth of 70%/72%/72%, operating margin ratio of 56.1%/61.4%/63.7%. 2025-2028E Revenue/Earnings CAGR accelerates to 66%/72% (vs 5.9%/4.9% for 2019-2023).

Analysis framework

GS analysis follows the main line "Demand-driven -> Volume-Price Split -> Profit Forecast -> Valuation Pricing". Demand Side: Starting from the macro trend of AI Agents (Agentic AI), deriving that server CPU and BMC addressable market (TAM) will expand for multiple years, which is the core logic of Aspeed's growth. Volume-Price Split: Conduct annual forecasts for BMC shipments and revise significantly upwards, while splitting ASP by product generation - new generation AST2700 prices 50-60% higher than AST2600, its penetration rise (48% by 2028) brings blended ASP growth of 19%/24%/20%, forming a "volume and price rising together" earnings upgrade logic. Valuation Level: Using 40x 2028E forward P/E (consistent with 10-year historical mean) applied to 2028E EPS, then discounting to 2027E using equity cost of capital (CoE) to obtain target price NT$22,000. Key CoE assumptions include: 1.5x beta, 4.25% risk-free rate, 6.25% market risk premium, all from Bloomberg and Goldman Sachs internal views.

Methodology notes

• Valuation MethodologyPE/PEG valuation

  Forward PE Valuation Method

  GS uses 40x 2028E EPS for valuation, multiple consistent with Aspeed's 10-year historical trading mean. Future profits are discounted back to present using Equity Cost of Capital (CoE) to obtain 12-month target price. This method applies to high-growth companies, using longer-term profits to smooth short-term valuation pressure.

• Industry/Industrial Analysis FrameworkPenetration S-curve

  Product Generation Penetration Improvement Path

  Report forecasts annual penetration for new AST2700 generation chip (2026 5% -> 2027 25% -> 2028 48%), implying S-curve penetration law from introduction to rapid volume phase. Penetration rise directly drives blended ASP and profit growth forecasts.

• Industry/Industrial Analysis FrameworkVolume-Price Split

  Shipment Volume and Average Selling Price (ASP) Split

  Break down revenue growth into two dimensions "Shipment Volume" and "Average Selling Price (ASP)" for separate forecasting. Here BMC shipments grow y-o-y +56%/41%/27%, combined with blended ASP growth 19%/24%/20% driven by high ASP AST2700 penetration, multiplying these gives revenue growth forecast.

• Quantitative/Factor/Portfolio TheoryCAPM Capital Asset Pricing

  Deriving Equity Cost (CoE) using CAPM Model

  GS uses CAPM model to calculate CoE required for discounting: CoE = Risk-Free Rate (4.25%) + Beta (1.5x) x Market Risk Premium (6.25%) = 13.6%. Beta taken from Bloomberg, reflecting Aspeed volatility relative to overall market; risk-free rate and risk premium adopt Goldman Sachs internal macro views.

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Supply-Demand Tightness Drives Price Hikes

  Report points out baseboard supply tightness provides further space for price hikes for Aspeed. Classic application of Supply-Demand framework - when upstream key raw material supply is limited, chip designers with pricing power can use this to raise prices, thereby increasing gross margin.

Asset mapping & comparison

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

• Aspeed (Aspeed, 5274.TWO)

  Direct Beneficiary Subject: GS covers and recommends Buy

  Strengths

  BMC chip penetration in AI servers continues to rise; New product AST2700 brings significant ASP increase; Product line diversification (mini BMC/I/O expander/PFR IC) contributes incrementals; Strong response capability to US CSP customer needs; Pricing power under baseboard supply tightness

  Weaknesses

  1Q26 operating margin pressured short-term due to rise in equity incentive expenses; High growth period CAPEX and operating leverage volatility may bring margin fluctuation

  Comparison

  Peers covered by GS include ASE Group, MediaTek, TSMC, etc., Aspeed expected to significantly outperform peers on growth dimension

  Risks

  Server market demand recovery falls below expectations; BMC penetration speed in AI servers slower than expected; Competition intensifies

• General Motors (GM)

  Associated Mention Subject: Title mentions GM, as background for 1Q26 performance

Key data

• 1Q26 RevenueNT$3,147mnYoY +52%, MoM +29%, higher than company prior guidance NT$2.6-2.7bn
• 1Q26 Gross Margin69.2%Higher than GS expectations and market consensus
• 1Q26 Operating Margin52.7%Lower than GS expectations due to increase in equity incentive expenses
• 2Q26E Revenue Forecast (GS)NT$3,763mnMoM +19.6%, higher than management guidance upper limit NT$3.6bn
• 2026-28E BMC Shipment Forecast29.5mn/41.6mn/52.8mn unitsYoY +56%/+41%/+27%, significantly revised up from previous value
• 2026-28E EPS Upgrade Magnitude+7.0%/+6.8%/+10.0%Reflects 1Q26 beat and BMC shipment revision up
• 2026-28E Revenue Growth Forecast70%/72%/72%YoY growth rate, 2025-28E CAGR reaches 66%
• 2026-28E Operating Margin Forecast56.1%/61.4%/63.7%Operating leverage continues to improve
• 12-Month Target PriceNT$22,000Raised from NT$20,000, based on 40x 2028E P/E discount, implies approx. 24% upside
• AST2700 ASP Increase MagnitudeApprox. 50-60%Increase compared to previous generation AST2600 ASP

Impact & implications

GS believes Aspeed is at the start of an earnings upgrade cycle. AI server demand (especially from US CSPs) not only drives short-term results to exceed expectations, but also brings continuous TAM expansion for BMC in server market through server architecture changes. With new generation AST2700 chips moving from introduction to volume ramp-up (penetration rate expected to reach 48% by 2028), combined with new products (mini BMC, I/O expander, PFR IC) gradually contributing revenue and capacity release after baseboard bottlenecks ease in H2 2026, Aspeed's revenue and earnings growth is expected to continue accelerating. Report forecasts 2025-2028E Revenue/Earnings CAGR will reach 66%/72%, far surpassing 5.9%/4.9% for 2019-2023, which constitutes the core logic for GS maintaining Buy and raising target price.

Risks

• Server market demand recovery falls below expectations
• BMC penetration speed in AI servers slower than expected
• Competition intensifies

What to watch

• Whether 2Q26 actual revenue and gross margin exceed expectations (GS forecast NT$3,763mn/69.5%)
• Customer acceptance and substantive pull on gross margin after price hikes for various product lines starting April
• AST2700 mass production progress and penetration rate improvement rhythm
• Degree of baseboard supply bottleneck relief after E-glass certification in H2 2026
• Actual pulling magnitude of AI Agent demand on server CPU and BMC TAM expansion