Asia Vital Components (3017): J.P. Morgan sees AVC as the leading beneficiary of higher-content AI-server liquid cooling

Overview

J.P. Morgan assumes coverage of Taiwan-listed Asia Vital Components (AVC) at Overweight. It argues that increasingly complex liquid-cooling requirements across AI GPU, ASIC and optical-interconnect systems should drive a multi-year increase in AVC’s cooling content, revenue and margins.

Core views

J.P. Morgan’s central thesis is that a new round of cold-plate upgrades will create a multi-year increase in liquid-cooling content in AI servers, with AVC positioned as the principal beneficiary. The report expects higher content from four sources: higher ASPs for selected switch-tray cold plates; double-sided cold-plate designs and potential diamond-and-copper adoption in Nvidia VR Ultra systems; more complex cooling requirements for ASIC platforms such as Google TPU v9 and AWS Trn4; and growing liquid-cooling use in OSFP and ELSFP optical modules. J.P. Morgan says AVC has secured major shares of these high-spec GPU and ASIC programs and estimates it holds roughly 50% share in each AI project. The near-term earnings case centers on cold-plate pricing, mix and manufacturing efficiency. J.P. Morgan expects gross margin to reach 34% in 3Q26 and 35% in 4Q26, above consensus of about 33% and 34%, respectively, after 30% in 1Q26 and 33% in 2Q26. The expected improvement reflects a greater ASIC contribution, rising yield and automation, and ASP increases for certain cold plates, particularly Nvidia/Mellanox switch-tray products, intended to offset higher material and overtime labor costs. With VR200 and liquid-cooled ASIC products including Trn3 and TPU v8 entering mass production, the report models 3Q26 revenue growth of 18% quarter on quarter and a further 19% in 4Q26, 1% and 5% above consensus, respectively. The report sees the largest medium-term content opportunity in double-sided cooling. It expects double-sided designs in AWS Trn3 and AMD MI450 compute trays from 4Q26 and considers adoption in Nvidia VRU compute trays likely from 2Q/2H27. Additional backside cooling plates and possible diamond-and-copper material adoption could raise VRU cooling content to US$3,000-3,500 per tray, around 50% above the prior generation. TPU v8 is also described as content-positive because of gold-plated TPU cold plates and additional plates for adjacent ICs, while TPU v9’s larger die and higher thermal design power increase the likelihood of double-sided cooling. The upside case would strengthen if TPU v9 adopts such a design and Trn4 adds incremental cold plates for NPO/CPO. J.P. Morgan forecasts revenue growth of 61%, 57% and 22% year on year in 2026, 2027 and 2028, respectively, and expects gross margin of 33%, 36% and 37%. It attributes the resulting EPS growth forecasts of 120%, 73% and 27% to stronger margin expansion as well as rising cooling content. Its 2026/27/28 EPS forecasts are 3%/16%/16% above Bloomberg consensus; 2027E EPS is NT$186.82 versus NT$161.19 consensus, while 2028E EPS is NT$236.28 versus NT$204.05. The report believes the market is underestimating the speed and scale of the earnings upgrade cycle. The Dec-2027 price target of NT$5,200 is based on 22x 2028E P/E and implies about 55% upside from the NT$3,400 share price on 29 September 2026. J.P. Morgan places the multiple toward the middle-to-high end of AVC’s 15-25x historical P/E range since the AI-server boom, arguing that above-consensus 2027-28 earnings can support it. AVC was trading at about 20x 12-month forward P/E, broadly in line with its historical average, which the report characterizes as undemanding given its anticipated content and earnings upgrades.

Analysis framework

J.P. Morgan links AI-server platform changes to the number, specification and selling price of cold plates, then translates these content changes into revenue, product mix and gross-margin forecasts. It compares its quarterly and annual forecasts with Bloomberg consensus, evaluates the valuation against AVC’s historical P/E range, and tests the thesis against risks around specification upgrades, market share and pricing.

Methodology notes

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  AI-server platform and cooling-specification transmission

  The report traces how GPU, ASIC and optical-module design changes raise cooling content per tray and then affect AVC’s revenue, mix and margins.

• Industry AnalysisVolume-price decomposition

  Cold-plate content, ASP and margin analysis

  The analysis separates additional cold-plate units and material upgrades from ASP increases, product mix and manufacturing yield to explain forecast growth.

• Valuation methodsP/E and PEG Valuation

  Forward P/E valuation

  J.P. Morgan values AVC at 22x 2028E P/E, comparing that multiple with the company’s historical 15-25x P/E range since the AI-server boom.

Asset mapping & comparison

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

• Asia Vital Components (3017.TW)

  Primary covered company and expected leading beneficiary of higher AI-server liquid-cooling content.

  Strengths

  Major share in high-spec GPU and ASIC cooling projects; expected benefits from double-sided designs, material upgrades, rising ASIC mix, yield gains and automation.

  Weaknesses

  Cold-plate standardization in Nvidia’s Group A components may reduce differentiation.

  Comparison

  J.P. Morgan expects AVC’s competitive advantages to support further share gains; it estimates AVC holds roughly 50% share in each AI project.

  Risks

  Slower AI-system specification upgrades, market-share losses and ASP/gross-margin pressure from competition.

Key data

• Current share priceNT$3,400.00Price as of 29 Sep 2026.
• Price targetNT$5,200Dec-2027 target based on 22x 2028E P/E; approximately 55% implied upside.
• EPS versus Bloomberg consensus2026/27/28: +3%/+16%/+16%J.P. Morgan estimates are above consensus.
• Revenue growth forecast61%/57%/22%Year-on-year growth forecast for 2026/2027/2028.
• Gross margin forecast33%/36%/37%Forecast for 2026/2027/2028; 2Q26 gross margin was 33%.
• EPS growth forecast120%/73%/27%Year-on-year EPS growth forecast for 2026/2027/2028.
• VRU cooling contentUS$3,000-3,500 per trayPotential content level with double-sided cold plates and new materials; about 50% above the prior generation.

Impact & implications

The report argues that AVC’s competitive position in high-spec AI cooling projects could allow it to convert accelerating GPU and ASIC cooling complexity into above-consensus earnings growth and sustained margin expansion. Its valuation case depends on this expected multi-quarter earnings upgrade path continuing through 2027-28.

Risks

• Future AI-system launches could be delayed or deliver less specification improvement than expected, requiring moderation of AVC growth estimates.
• AVC could lose market share despite high entry barriers and customers typically using only two to three suppliers.
• Cold-plate standardization and competition could pressure ASPs and gross margins.

What to watch

• Adoption timing of double-sided cold plates in Nvidia VRU, Google TPU v9, AWS Trn3 and AMD MI450 platforms.
• Whether VRU adopts diamond-and-copper materials and whether Trn4 adds incremental NPO/CPO cold plates.
• 3Q26 and 4Q26 gross-margin performance, including yield improvement, ASIC mix and ASP increases.
• The ramp of VR200, Trn3 and TPU v8 liquid-cooled systems into mass production.