AI capex extends the Asian automation upcycle

Overview

This report reviews operating data for the Asian industrial automation industry in 2Q26 and assesses the cycle position by combining global manufacturing PMIs, Japanese machinery and machine tool orders, machine component production and sales, robot output, and Chinese manufacturing indicators. HSBC believes this upcycle began in 3Q25. Although the market worries that it may have peaked in 2Q26, current orders, revenue, and company guidance show no clear slowdown. AI server connectors, enclosures, liquid-cooling components, and chip manufacturing are expanding demand for CNC systems, machine tools, pneumatic components, linear motion components, and machine vision.

Core views

First, AI servers and semiconductor capex remain the strongest drivers of the industry, with order visibility extending to end-2026. Second, the traditionally largest downstream segment, autos, has stabilized, and strong demand for new energy vehicles in China can partially offset weakness in Europe. Third, performance among automation stocks has diverged significantly, so investors should prioritize companies with stronger fundamental catalysts or share prices that have already over-corrected. Fourth, raw materials, exchange rates, and supply bottlenecks currently have limited impact, but if they worsen further, they could weaken revenue and margins.

Analysis framework

The report uses a combined top-down and bottom-up approach: first observing global and Asian manufacturing conditions, then tracking high-frequency indicators such as Japanese machinery, machine tools, components, and robots, then checking quarterly orders, revenue, gross margins, and management guidance for major companies, and finally conducting cross-company comparisons based on share-price performance, valuation, target prices, catalysts, and risks.

Methodology notes

• Cycle assessmentOrder-production lead relationship

  Machinery and machine tool orders lead physical production

  Japanese machine tool orders typically lead production by about 6 to 12 months, so YoY order growth and regional composition can be used to assess future shipment and revenue trends.

• High-frequency trackingCross-validation using multiple indicators

  Layer-by-layer validation from macro conditions to corporate revenue

  The report combines manufacturing PMIs, machinery orders, component production and sales, robot output, monthly sales, and corporate guidance to avoid relying on a single indicator to judge the cycle.

• Stock selectionCatalyst and expectations-gap analysis

  Compare fundamental improvement with the degree reflected in share prices

  Priority is given to companies whose monthly sales and margins still have room to rise, or companies with valuation rerating opportunities due to excessive market concerns.

• Valuation analysisForward P/E valuation

  Derive target prices based on forward EPS and target P/E multiples

  For example, Airtac is valued using expected 2027 EPS and a 25x target P/E, together with its historical forward P/E range to determine a reasonable target price.

Asset mapping & comparison

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

• Hiwin (2049 TT)

  One of the preferred names, rated Buy

  Strengths

  China demand is driven by AI server enclosures and liquid-cooling connectors, with further upside potential in monthly sales and margins.

  Weaknesses

  Earnings remain affected by China’s manufacturing cycle, capacity utilization, and exchange-rate movements.

  Comparison

  Compared with Airtac, the report believes Hiwin has more catalysts from monthly sales and margins.

  Risks

  Demand recovery below expectations, price competition, rising raw material costs, and TWD appreciation.

• Fanuc (6954 JP)

  Preferred Japanese automation name, rated Buy

  Strengths

  Demand from AI servers, semiconductors, China’s new energy vehicles, and 3C is strong, with orders accelerating significantly YoY.

  Weaknesses

  The market is concerned about cost pressure, margins, and the impact of JPY appreciation.

  Comparison

  The stock fell 8% over the past three months, while Keyence rose 46%; the report believes this divergence is excessive and Fanuc has greater rerating potential.

  Risks

  Raw material costs, JPY appreciation, chip and rare-earth bottlenecks, and shipment delays.

• Inovance (300124 CH)

  Core China automation recommendation, rated Buy

  Strengths

  Well positioned in industrial AI and China’s manufacturing automation upgrade, with the target price implying substantial upside.

  Weaknesses

  The share price is highly correlated with China capex, manufacturing conditions, and market risk appetite.

  Comparison

  Among the core recommended names, its potential upside is higher than Hiwin, Fanuc, Airtac, and Keyence.

  Risks

  Slower industrial capex, intensified competition, and earnings delivery falling short of expectations.

• Zhaowei-H (2692 HK)

  Dexterous-hand theme recommendation, rated Buy

  Strengths

  Has exposure to dexterous hands and precision transmission, with the target price implying 121% potential upside.

  Weaknesses

  The investment thesis is relatively sensitive to the commercialization progress of emerging robotics applications.

  Comparison

  Compared with the Hold rating on Zhaowei-A, the H-share has a Buy rating and greater potential upside.

  Risks

  Delays in dexterous-hand mass production, customer onboarding falling short of expectations, and valuation volatility.

• Airtac (1590 TT)

  Rated Buy, but lower positioning priority than Hiwin

  Strengths

  Demand from electronics, autos, and batteries is strong, and management raised 2026 revenue guidance to growth of more than 20%.

  Weaknesses

  Smartphone demand may be affected by seasonal weakening in 2H26.

  Comparison

  Fundamentals remain strong, but the report believes Hiwin has more compelling upside catalysts from monthly sales and margins.

  Risks

  China demand weaker than expected, slow expansion of linear guideways, price competition, rising raw material costs, and TWD appreciation.

• Keyence (6861 JP)

  Rated Buy, but near-term risk-reward is lower than Fanuc

  Strengths

  China operations are supported by AI servers, semiconductors, and electronics demand; Japan and Europe are stabilizing, and the U.S. market remains resilient.

  Weaknesses

  The stock has risen 46% over the past three months, and much of the fundamental improvement may already be priced in.

  Comparison

  Compared with Fanuc, which fell 8% over the past three months, Keyence has less room for near-term valuation recovery.

  Risks

  Pullback from high valuation, slowing electronics demand, and regional manufacturing recovery falling short of expectations.

Key data

• Starting point of this cycle3Q25It had lasted about one year as of the report date, with no clear signs of slowdown yet.
• April-June 2026 YoY order growthFanuc 37%; SMC 56%; THK 70%Order growth at all three companies accelerated from the previous quarter.
• April-June 2026 YoY revenue growthKeyence 33%; Airtac 36%; Hiwin 27%AI servers, semiconductors, and electronics demand were the main drivers.
• 2026 revenue growth guidance7% to 29%Several companies raised guidance significantly; previous expectations were roughly 3% to the teens.
• Fanuc valuation informationCurrent price JPY6,535; target price JPY7,600; potential upside 16%Rated Buy; the stock fell 8% over the past three months, and the report believes margin concerns have been over-reflected.
• Hiwin valuation informationCurrent price TWD387; target price TWD457; potential upside 18%Rated Buy, with upside catalysts from monthly sales and margins.
• Inovance valuation informationCurrent price RMB64.60; target price RMB96.00; potential upside 49%Rated Buy, benefiting from the development of industrial AI.
• Zhaowei-H valuation informationCurrent price HKD47.42; target price HKD105; potential upside 121%Rated Buy, with the core thesis being exposure to the dexterous-hand business.

Impact & implications

At the industry level, AI infrastructure investment is spreading from compute chips to server enclosures, connectors, liquid cooling, precision machining, and automation equipment, making the industrial automation demand cycle longer than the market originally expected. At the investment level, investors should avoid allocating solely based on the overall industry rally and instead focus on companies with a combination of accelerating orders, margin improvement, and valuation expectation gaps. If 3Q26 earnings continue to grow, recently corrected names such as Fanuc may begin to rerate; Hiwin may benefit from monthly sales and margins exceeding expectations.

Risks

• Rising raw material prices may create stronger margin pressure.
• JPY appreciation may slow revenue growth at Japanese automation companies and compress margins.
• Shortages of chips and rare-earth materials may worsen shipment bottlenecks and delivery delays.
• AI server or semiconductor capex below expectations would weaken the core driver of this cycle.
• Continued weakness in European auto demand may offset the resilience of China’s new energy vehicle demand.
• Some share prices have already risen sharply; if earnings fail to continue exceeding expectations, valuations may fall back.

What to watch

• Whether orders, revenue, and margins at companies such as Fanuc can continue to grow from July to September 2026.
• Hiwin’s monthly sales, growth in linear motion products, and the extent of gross-margin improvement.
• Capex related to AI server enclosures, liquid-cooling connectors, and semiconductor equipment.
• Japanese machine tool orders and their leading signal for production and shipments over the next 6 to 12 months.
• China new energy vehicle demand and the pace of stabilization in the European auto industry.
• Movements in JPY, TWD, and RMB exchange rates, as well as the supply situation for chips, rare earths, and other raw materials.
• Whether industry companies further raise 2026 revenue and earnings guidance.