Chip Supply Security Brings Near-Term Upside, Morgan Stanley Maintains Overweight on Accton

Overview

This report focuses on near-term fundamental improvement at Accton Technology Corporation. Morgan Stanley had previously been concerned that chip supply tightness would constrain 2Q26 switch shipments, but latest diligence shows the company has already secured sufficient chips, so both revenue and margins have upside potential. The report also expects 800G migration, AI accelerator module customer ramp-up and higher capital spending to support 2H26 and medium-to-long-term growth.

Core views

The core view is constructive: Accton should continue to benefit from demand for network switches and AI accelerator modules from AI deployments. 2Q26 revenue, gross margin, operating profit and net profit are all expected to improve sequentially, and product mix optimization supports margin expansion. The report raised 2026-2028 earnings estimates by 5%-7% and increased the target price to NT$3,350.

Analysis framework

The report updates a bottom-up company model, incorporating monthly sales, chip supply diligence, quarterly financial forecasts, capex plans and scenario-based valuation. Valuation is anchored on 2027 EPS, using 33x P/E as the base-case multiple, and tests the risk-reward range with bull and bear scenarios.

Methodology notes

• Valuation methodsP/E valuation

  Target price based on 33x 2027 EPS

  The base-case target price of NT$3,350 is estimated using 33x 2027 EPS. The report believes that 2025-2028 operating profit CAGR of 42% supports this valuation multiple.

• Valuation methodsPEG comparison

  Implied PEG around 0.8x

  The target multiple implies an implied PEG of around 0.8x, below the historical average of about 1.1x for 2020-2024, which the report views as supportive of valuation.

• Scenario analysisRisk-reward scenarios

  Bull, base and bear target price ranges

  Bull case target NT$3,800, base case target NT$3,350, and bear case target NT$1,700, reflecting different switch and AI module demand strength, capex environment and technology roadmap shifts.

Asset mapping & comparison

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

• Accton Technology Corporation equity

  Core coverage name

  Strengths

  Secured chip supply, improving switch shipments, AI accelerator module customer ramp-up, improved product mix and upward revisions to capex.

  Weaknesses

  Valuation has moved up materially, and performance is relatively highly dependent on data center capex and the project pacing of large customers.

  Comparison

  The report maintains Overweight and believes total return should outperform the average level across the coverage universe over the next 12-18 months.

  Risks

  Data center capex weakness, slower 800G switch specification upgrade, InfiniBand taking AI networking share, and weaker-than-expected growth in custom AI accelerator demand.

• Ethernet network switch business

  Primary growth driver

  Strengths

  Benefits from data traffic growth, 800G/1600G specification upgrades, and ODM-direct market share opportunities.

  Weaknesses

  Sensitive to chip supply, customer production ramp timing, and cloud-provider capex cycles.

  Comparison

  The report expects this business to become the main revenue driver in 2026, supported by existing customer growth and added hyperscaler contribution.

  Risks

  Specification migration slower than expected, or Ethernet share in AI networking being diverted to InfiniBand.

• AI accelerator module business

  Source of incremental growth

  Strengths

  New models from key customers are expected to begin limited shipments by late 2Q26, with more pronounced ramp-up in 2H26.

  Weaknesses

  Ramping is still at an early stage and may be affected by customer projects, custom AI accelerator demand, and supply-chain execution.

  Comparison

  Bull-case assumptions expect AI card and AI module demand to exceed expectations.

  Risks

  Custom AI accelerator growth weaker than expected, or merchant GPUs continue to dominate in AI servers.

Key data

• April salesNT$27,360mnUp 9% sequentially and 54% year-over-year.
• 2Q26 revenue forecastNT$83,911mnExpected to increase 20% sequentially and 38% year-over-year.
• 2Q26 gross margin forecast20.0%Up 0.5 percentage points from 1Q26, supported by a more favorable revenue mix.
• 2Q26 operating profit forecastNT$12,637mnExpected to increase 26% sequentially and 56% year-over-year, with an operating margin of 15.1%.
• 2Q26 net profit forecastNT$9,955mnExpected to increase 19% sequentially and 98% year-over-year, with EPS of NT$17.81.
• 2026 capex outlookaround NT$10bnHigher than the previous expectation of around NT$7bn, reflecting stronger medium-to-long-term demand confidence.
• 2026-2028 earnings estimate adjustmentRaised by 5%-7%Mainly reflecting near-term chip supply improvements and improved profitability assumptions.
• Target priceNT$3,350Previous target was NT$3,150; current close was NT$2,375, implying around 41% upside.

Impact & implications

If chip supply improvements and 800G migration progress as assessed in the report, Accton's near-term performance may continue to exceed expectations, and the market's valuation re-rating of it as an AI infrastructure beneficiary may continue. However, consensus P/E is already clearly elevated, and the stock is more sensitive to shifts in demand, margins and technology-roadmap outcomes.

Risks

• Data center capex is weaker than expected.
• 800G/1600G network switch specification migration is slower than expected.
• InfiniBand gains more share in AI networking, weakening Ethernet switch demand.
• Growth of custom AI accelerator and AI module demand is weaker than expected.
• The pace of adopting the ODM-direct model slows down.
• Valuation is already elevated, and failure to deliver earnings as expected could create downside pressure.

What to watch

• Whether 2Q26 revenue reaches around NT$83,911mn and whether gross margin rises to 20.0%.
• Whether monthly sales after April and switch shipments continue to validate improved chip supply.
• How quickly 800G/1600G switch programs move into mass production.
• The actual ramp-up pace in 2H26 of key customers' new AI accelerator module models.
• Where 2026 capex of around NT$10bn is deployed, and the use of capacity and overseas capacity share.
• How data center capex and AI networking technology roadmaps evolve between Ethernet and InfiniBand.