Foxconn Industrial Internet's AI server rack volumes are increasing, and spec upgrades reinforce its leading market position

Overview

This report focuses on Foxconn Industrial Internet's growth opportunities in the AI server rack business. Goldman Sachs believes that specification migration from new-generation platforms such as Rubin Ultra and Feynman, rising network configuration complexity, and higher supply-chain entry barriers will drive Foxconn Industrial Internet to further expand its leading position in AI server racks.

Core views

The core view is: first, Foxconn Industrial Internet is a principal beneficiary among ODM vendors under AI server specification upgrades; second, its strong R&D capability, end-to-end coverage from components to ODM and from servers to switches, and global manufacturing footprint with large-scale U.S. production capacity are key competitive advantages; third, although the share of low-margin AI server rack shipments is increasing, yield and efficiency improvements, together with a transition in the business model from Buy & Sell to Consign, are expected to support gross margin improvement.

Analysis framework

Goldman Sachs incorporated 4Q25 results into the model, kept the 2026 net profit forecast largely unchanged, raised 2027-2028 revenue, operating profit, and net profit forecasts, and compared company forecasts with Bloomberg consensus and peer valuations. Valuation uses a near-term P/E approach, rolls the 12-month target price to 2027E, and conducts peer regression based on net profit growth and operating margin.

Methodology notes

• Valuation methods12-month target price P/E valuation

  Derive Rmb93.9 target price based on 21.6x 2027E P/E

  The target P/E multiple is based on a regression relation between peer P/Es and forward fundamental indicators, including year-on-year net profit growth and operating margin.

• earnings forecastearnings forecast revision

  Raise 2027E-2028E earnings forecasts

  2026E net profit is kept largely unchanged, while 2027E and 2028E net profit were raised by 12% and 33%, respectively, mainly due to AI infrastructure demand growth and AI server rack market share gains.

• peer comparisonPeers regression / PEG&M

  Evaluate target multiple reasonableness using peer valuation, growth, and margins

  The report compares FII with Gigabyte, Wiwynn, Wistron, Inventec, and Quanta; FII has strong appeal on 2028E net profit growth and the PEG&M metric.

Asset mapping & comparison

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

• 601138.SS / Foxconn Industrial Internet

  Core coverage name

  Strengths

  Leading AI server rack share, strong R&D, broad product coverage from servers to switches, global manufacturing footprint, and large-scale U.S. manufacturing capacity.

  Weaknesses

  AI server rack business gross margins are lower, and business-model and product-generation transitions could weigh on near-term market sentiment.

  Comparison

  Compared with Bloomberg consensus, Goldman Sachs has 2027E revenue 21% higher, operating profit 12% higher, and net profit 8% higher; in the peer table, FII's 2028E net profit growth is about 34%, with PEG&M around 0.3, better than peer averages.

  Risks

  AI server demand or profit may fall short of expectations, iPhone component expansion may underperform, ramp-up of new factory capacity may be slower than expected, and iPhone shipments may come in below expectations.

Key data

• 12-month target priceRmb93.9Previous target price was Rmb92.9; the report keeps a Buy rating.
• Current priceRmb59.32Charts show corresponding upside of 58.3%.
• Target P/E21.6x 2027E P/EUsed to derive the 12-month target price.
• AI server rack market shareabout 60% in 2025 -> about 70% in 2028EGoldman Sachs expects continued share gains.
• AI server-related revenue share49% in 2025 -> 85% in 2028EAI server business becomes the core driver of revenue growth.
• 2027E revenue forecastRmb2,358,894mnRaised 6% from prior forecast and 21% above Bloomberg consensus.
• 2028E revenue forecastRmb3,365,619mnRaised 29% from prior forecast.
• 2027E net profit forecastRmb86,264mnRaised 12% from prior forecast and 8% above Bloomberg consensus.
• 2028E net profit forecastRmb115,615mnRaised 33% from prior forecast.
• 2025-2028E net profit CAGR+49%Higher than +5% CAGR for 2021-2024A, supporting the rerating logic.

Impact & implications

If AI infrastructure investment persists and server and switch specification upgrades proceed as expected, Foxconn Industrial Internet's AI server rack revenue, market share, and profit growth may continue to exceed consensus and support valuation expansion. The report's investment implication is constructive, but valuation multiples already reflect some market concern about the shift from GB300 to Rubin.

Risks

• AI server business demand and profit fall short of expectations.
• iPhone component business expansion is below expectations due to intense competition.
• Ramping of new factory capacity is slower than expected.
• Pressure on the company may arise if iPhone shipments are below expectations because the company supplies iPhone components.
• Market concerns during the transition from GB300 to Rubin and other platforms may affect valuation multiples.

What to watch

• The pace of specification upgrades for new platforms such as Rubin Ultra and Feynman.
• Whether AI server rack market share rises along the path from about 60% in 2025 to about 70% in 2028E.
• Whether AI server-related revenue share continues to rise to 85% by 2028E.
• The extent to which yield, manufacturing efficiency, and the switch to the Consign model actually support margins.
• Whether 2027E and 2028E revenue, operating profit, and net profit are delivered relative to consensus.
• Progress of large-scale U.S. production capacity and ramp-up at new factories.