AI Server Upgrades Drive Hardware Opportunities—Focus on ODMs and Key Components
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AI Server Upgrades Drive Hardware Opportunities—Focus on ODMs and Key Components
Morgan Stanley is bullish on the opportunities created by upgrades to AI GPU and ASIC servers/racks, particularly the Vera Rubin platform and GB300 deliveries; we recommend AI server ODMs and suppliers of scarce components such as ABF substrates and PCBs.
- GB200/300 rack shipments are expected to reach 70,000–80,000 units in 2026, and VR200 racks will begin ramping up starting in the fourth quarter of 2026.
- The PCB content value in VR200 racks has increased by approximately 233% compared to GB300, MLCC content by about 182%, and ABF substrate content by roughly 82%.
- The supply of ABF substrates will become tight starting in 2027, and the tight supply of T-Glass substrates will continue until 2028.
- Rising memory prices have caused iPhone memory costs to more than double year-on-year, putting greater profit margin pressure on Android manufacturers.
- Global smartphone shipments are expected to decline by 13% year-on-year in 2026, driven mainly by weaker Android sales.
- We prefer Apple's supply chain over Android's, as Apple has stronger pricing power and more stable demand.
- In the PC market, supply fell short of demand in the first half of the year, and OEMs boosted profits by optimizing their product mix; however, they need to watch out for the impact of memory inflation in the second half.
Report interpretation
Overview
This report provides an in-depth analysis of the Greater China tech hardware industry, focusing on computing foundation building blocks such as AI servers, AI infrastructure, and electronic components. The report believes that with major design upgrades like NVIDIA’s Vera Rubin platform and Kyber architecture, there are significant investment opportunities in the AI GPU and ASIC server/rack sector. Although the ODM sector has underperformed relative to the broader market so far this year, given the smooth delivery of GB300 and attractive risk-reward, we are optimistic about suppliers with strong integration capabilities and solid shipment records. At the same time, the report also highlights the risks that consumer electronics (smartphones/PCs) may face in the second half due to memory inflation, which could put pressure on demand and profit margins.
Core views
The momentum of AI servers remains strong, with cloud capital expenditure growing year-on-year in 2025–2026. NVIDIA GB200/300 racks are expected to reach 70,000–80,000 units in 2026, with Quanta likely to capture a larger share of GB racks in 2026. Production of VR200 racks has been delayed by 1–2 months due to component issues, but they are expected to start ramping up in the fourth quarter of 2026. The VR200 platform brings significant increases in component value. A bottom-up analysis shows that compared to GB300, the PCB content value in VR200 racks has risen by about 233%, MLCC content by around 182%, ABF substrate content by about 82%, cooling component content by about 12%, and power supply content by about 32%. The cost of a single VR200 NVL72 rack for hyperscale data centers is estimated at around $7.8 million. ABF substrates have entered the era of AI diffusion, and shortages are expected to begin in 2027. The proportion of AI-related applications is projected to rise above 75% by 2030. The tight supply of T-Glass substrates is expected to persist until 2028. Under the assumption of a total CPU market size growth of 10–15 million units, companies like Unimicron, Lotes, FIT, and Yageo will see significant upside in revenue. In the smartphone sector, soaring memory prices are putting pressure on OEM profit margins. iPhone average memory costs are expected to rise by more than 150% year-on-year in 2026. While Apple can partially offset these costs through price hikes, Android manufacturers, with lower gross margins and more price-sensitive customer bases, will be hit harder. Therefore, the report maintains its preference for Apple’s supply chain over Android OEMs and their supply chains. Global smartphone shipments are forecasted to decline by 13% year-on-year in 2026, with Android shipments expected to drop by 15%. In the PC market, demand exceeded supply in the first half of the year, and PC prices rose faster than costs. OEMs improved short-term profits and margins by optimizing their product mix (reducing sales of low-end PCs and increasing high-end PCs). However, institutions remain cautious, believing that the impact of memory inflation on margins and demand will become evident in the second half of 2026.
Analysis framework
The report adopts a bottom-up disaggregation approach, comparing detailed bills of materials (BOMs) between different generations of AI servers (such as GB300 and VR200), quantifying changes in the value of key components like PCBs, MLCCs, ABF substrates, and cooling systems. It also combines supply chain research and AlphaWise consumer survey data to assess how rising memory prices affect cost pass-through and demand elasticity for smartphone and PC OEMs. Additionally, by analyzing CoWoS capacity expansion plans and supply-demand balance sheets for ABF and T-Glass substrates, the report forecasts the timing of shortages for upstream critical materials.
Methodology notes
By analyzing the supply capacity of ABF substrates and T-Glass against the growth in AI-driven demand, we predict supply shortages after 2027.
When demand growth outpaces capacity expansion, shortages occur, driving up prices and supplier profits. By comparing supply and demand curves, the report identifies key material bottlenecks.
Breaking down the value of AI server racks into specific components such as GPUs, CPUs, PCBs, and MLCCs, and comparing volume and unit price changes across different generations.
By dissecting the product BOM, we can precisely identify which components show the largest increase in value during new product iterations, thus pinpointing the most certain beneficiary segments.
The ODM sector has underperformed relative to the broader market so far this year, but fundamentals (such as GB300 deliveries) are improving, leaving room for expectation recovery.
When market sentiment turns pessimistic and stock prices fall excessively, while fundamentals actually improve, buying opportunities often emerge—this is the gain from expectation gaps.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Wistron (3231.TW)Beneficiary: As a major beneficiary of the VR200 and MI400 series, and gaining market share in GB racks.
- Strengths
- Strong position in NVIDIA and AMD’s new-generation platforms, rapidly increasing AI revenue and profit share.
- Comparison
- Compared to other ODMs, it has greater flexibility in the VR200 era.
- Quanta (2382.TW)Beneficiary: Expected to capture a share of GB racks in 2026 and is a key partner for many cloud giants.
- Strengths
- Broad customer base (Microsoft, Google, Amazon, Meta, etc.), strong manufacturing capabilities.
- Comparison
- Central player in the GB200/300 supply chain.
- Unimicron (3037.TW)Beneficiary: Core supplier amid ABF substrate shortages, with significant revenue upside from CPU TAM growth.
- Strengths
- Holds a key position in AI GPU ABF substrate supply, with high technological barriers.
- Comparison
- Outperforms peers in the high-end ABF segment.
- Luxshare (002475.SZ)Beneficiary: Core player in Apple’s supply chain, benefiting from Apple’s stronger position relative to Android.
- Strengths
- Deeply tied to Apple, diversified business expansion.
- Comparison
- Outperforms Android supply chain players.
Key data
- 2026 GB200/300 Rack Forecasted Shipments70,000–80,000 unitsMorgan Stanley forecast
- Estimated Cost of VR200 Racks~$7.8 millionFor hyperscale data centers
- VR200 vs GB300 PCB Content Increase~233%Bottom-up analysis
- VR200 vs GB300 MLCC Content Increase~182%Bottom-up analysis
- 2026 iPhone Memory Cost Year-on-Year Increase>150%Estimate
- 2026 Global Smartphone Shipments Forecast Change-13% YoYDriven mainly by Android decline
- Year ABF Substrate Shortages Begin2027Forecast
Impact & implications
The report believes that the rapid iteration and scaling of AI servers will directly benefit manufacturers with strong capabilities in high-end PCBs, ABF substrates, and MLCCs, as well as leading ODMs with robust integration capabilities (such as Wistron, Quanta, and Wiwynn). For the smartphone supply chain, the sharp rise in memory costs will squeeze profit margins for Android players, potentially hurting demand for mid-to-low-end models. Apple’s supply chain, benefiting from brand premium and strong bargaining power, will be relatively less affected and thus more valuable. In the short term, PC OEMs can maintain profits through product structure optimization, but they need to watch out for cost pressures in the second half.
Risks
- Consumer electronics (smartphones/PCs) demand may decline in the second half due to memory inflation, putting pressure on profit margins.
- Rising raw material prices (copper, nickel) and supply constraints pose headwinds for profit margins.
- Supply shortages may delay shipment schedules.
- Geopolitical tensions could affect spending on AI data center infrastructure.
What to watch
- The ramp-up of VR200 racks in the fourth quarter of 2026.
- Changes in the supply-demand balance of ABF substrates and T-Glass substrates, especially the extent of shortages after 2027.
- Trends in memory prices and their specific impact on smartphone and PC OEM profit margins.
- The smoothness of GB300 server rack deliveries and changes in ODM market share.