Goldman Sachs raises Zhongji Xuchuang target price to Rmb1,187 and maintains Buy

Overview

This is a Goldman Sachs company research and rating-action report on Zhongji Xuchuang. The core view is that after upward revision of global AI server TAM and optical module TAM, Zhongji Xuchuang is expected to continue benefiting from growing AI data center optical interconnect demand through leading position in high-speed optical connectivity, migration of products toward 1.6T/3.2T, higher SiPh share, and tighter light-source supply. Goldman Sachs maintains a Buy rating and raises the 12-month target price to Rmb1,187.

Core views

Goldman Sachs believes Zhongji Xuchuang’s growth is driven by two main threads: first, AI server shipment ramp-up and increasing rack-level compute density, which support higher total demand for optical modules; second, migration of Rubin rack-level servers and Rubin Ultra to 3.2T and increased ASIC adoption of 1.6T+, which shifts the product mix toward faster, higher-value offerings. The report expects this mix upgrade to support ongoing gross margin expansion and give the company higher revenue and earnings leverage versus Bloomberg consensus expectations in 2027E.

Analysis framework

The report analyzes the stock by revising earnings forecasts upward, comparing with Bloomberg consensus expectations, running P&L forward estimates, benchmarking valuation versus peers, and referencing historical valuation ranges. For valuation, Goldman Sachs starts from near-term P/E and derives a target P/E based on the relationship between network-equipment peer transaction multiples and forward fundamental metrics, then uses 2027E-2028E average net profit growth and operating margin to arrive at a 34.2x target P/E.

Methodology notes

• Valuation methodsNear-term P/E valuation

  34.2x 2027E P/E

  The 12-month target price is based on a 34.2x 2027E P/E. This multiple is derived from the relationship between network-equipment peer transaction P/E and forward net profit growth and operating margin, with abnormal observations caused by upstream CPO-related supplier premia removed.

• ForecastingEarnings revision

  Revisions to revenue, gross margin and net profit

  Goldman Sachs raised 2026-2028E forecasts for revenue, gross margin, and net profit, mainly reflecting higher AI server and optical module TAM, a higher-quality AI server shipment mix, and increasing share of high-speed optical modules and SiPh revenue.

• Disclosure frameworkGS Factor Profile

  Growth, returns, valuation multiples, and blended factor

  Goldman Sachs’s factor profile is used to compare Zhongji Xuchuang against the market and sector peers on growth, financial returns, valuation multiples, and blended percentile. In the main report narrative, the investment conclusion for Zhongji Xuchuang mainly relies on earnings revisions and P/E valuation.

Asset mapping & comparison

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

• Zhongji Xuchuang 300308.SZ

  Report focus company, Buy rating

  Strengths

  Leading position in high-speed optical modules, eight consecutive quarters of gross margin expansion, benefiting from increased AI server volumes and upgrades to 1.6T/3.2T specs, and a rising SiPh share.

  Weaknesses

  Net profit upward revisions are smaller than operating profit revisions, partly reflecting a larger share of minority interest in net profit; performance is sensitive to high-end AI server demand and the pace of optical module migration.

  Comparison

  Goldman Sachs’s 2026E net profit is broadly close to Bloomberg consensus, but 2027E net profit is 15% above consensus, reflecting more optimistic revenue and margin assumptions.

  Risks

  Demand for 800G+ modules falls short or is weaker than expected, ramp-up of new optical devices slows, market share normalization for 800G+ occurs faster than expected, geopolitical risk, and worsening component supply constraints limiting shipment growth.

• AI data center optical module supply chain

  Core demand driver

  Strengths

  AI server shipments, rising rack compute density, and multiple networking configurations coexisting are driving high-speed optical module demand growth.

  Weaknesses

  Different network architectures and customer timing may cause short-term demand volatility.

  Comparison

  The report expects all major AI data center networking configurations to enjoy strong growth in the coming years.

  Risks

  If the pace of server TAM growth, optical module TAM growth, or specification upgrades falls short of expectations, supply-chain growth leverage would weaken.

Key data

• 12-month target priceRmb1,187Target price increased by 50%; Buy rating maintained.
• Current priceRmb809.61From the report disclosure page.
• Target P/E34.2xPreviously 28.0x, based on 2027E P/E.
• 2026-2028E net profit revisions7% / 24% / 29%Primarily driven by higher revenue and gross margin.
• 2026-2028E revenue revisions11% / 19% / 22%Reflects upward revisions to AI server and optical module TAM and improved high-end AI server shipment mix.
• 4Q25 gross margin44.5%Continuous gross margin expansion for 8 consecutive quarters since 1Q24.
• 1.6T+ revenue share2025 32% to 2028E 92%Driven by migration to 3.2T in Rubin Ultra and increased ASIC adoption of 1.6T+.
• SiPh revenue contribution2025 92% to 2028E 98%Supports gross margin revisions in 2027E-2028E.
• 2027E net profit vs. Bloomberg consensushigher by 15%Goldman Sachs is more constructive on revenue and margin leverage.

Impact & implications

The investment implications for Zhongji Xuchuang are constructive. If AI server shipments and high-speed optical module migration proceed as Goldman Sachs expects, the company’s revenue, gross margin, and net profit are expected to keep rising, potentially earning a valuation level above historical averages. For the supply chain, the increasing penetration of 800G+ modules, 1.6T/3.2T modules, and SiPh modules is an important observation point for AI data center network upgrades over the next several years.

Risks

• Demand for 800G+ optical modules coming in slower or weaker than expected.
• Faster-than-expected slowdown in ramp-up speed for new optical devices.
• Normalization of market share for 800G+ optical modules occurs faster than expected.
• Geopolitical risk.
• Deterioration in component supply conditions that constrains shipment growth.

What to watch

• Changes in AI server shipment volume and high-end AI server mix.
• Adoption pace of Rubin, Rubin Ultra, and ASIC platforms for 1.6T/3.2T optical modules.
• Whether Zhongji Xuchuang’s quarterly gross margin continues its expansion trend.
• Whether the share of SiPh and 1.6T+ product revenue is rising in line with forecasts.
• Whether light-source and key component supply remains tight or becomes a bottleneck.
• Whether the gap between Goldman Sachs estimates and Bloomberg consensus continues to widen or converge.