Giga-Byte's 1Q26 gross margin beat expectations, server capacity to double, but Neutral rating maintained

Overview

This report is UBS's 1Q26 earnings review of Giga-Byte Technology. In 1Q26, revenue, gross margin, operating margin, and EPS all materially beat expectations, mainly driven by AI server demand and a better mix of high-end motherboards and graphics cards. Management plans to accelerate server capacity expansion in 2026, but UBS expects PC, gaming, and graphics card demand to weaken in H2 2026, while rising component costs will pressure branded hardware makers' margins, so the firm maintains a Neutral rating.

Core views

The key views are: first, 1Q26 results were strong, with revenue of NT$105.057bn, EPS of NT$7.86, and gross margin of 12.0%, all clearly above prior expectations; second, AI servers are the main growth engine, with 2026 server revenue expected to grow 52% YoY and another 20% in 2027; third, PC, motherboard, and graphics card demand faces a pull-forward risk followed by normalization, and UBS expects MB/VGA sales to decline 13%/1% YoY in 2026/2027; fourth, valuation already reflects much of the near-term good news, and 12.4x/11.1x 2027E/2028E P/E is broadly in line with global hardware peers.

Analysis framework

The report evaluates Giga-Byte's earnings upgrades and valuation upside by combining earnings decomposition, management capacity guidance, the server platform cycle, PC/graphics card channel demand, a memory cost model, peer P/E valuation, and scenario analysis.

Methodology notes

• Valuation methodsP/E multiple valuation

  12x 2028E P/E

  UBS uses 2028E EPS of NT$29.32 and assigns about 12x P/E to derive a NT$340 target price; the multiple is in line with global hardware peers and sits in the middle of the company's historical 5-25x range.

• scenario_analysisupside/base/downside spectrum

  NT$465 / NT$340 / NT$215 scenario valuation

  The upside case assumes stronger PC and gaming demand, better-than-expected server momentum, and margin improvement; the downside case assumes weaker PC/gaming demand, weaker-than-expected servers, and competition plus inventory corrections weighing on margins.

• earnings_revisionestimate revision

  2026-2028 EPS revisions

  UBS raised adjusted EPS for 2026/2027/2028 by 37%/24%/15%, reflecting the 1Q26 upside surprise and sales growth from accelerated capacity expansion.

• channel_and_pricing_checkUBS Evidence Lab pricing trend study

  RTX50 graphics card price and supply-demand changes

  UBS observed that after the RTX50 launch, prices began to plateau and discounts appeared, and graphics card demand could soften in 2026 as supply and demand move toward balance.

Asset mapping & comparison

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

• Giga-Byte Technology (2376.TW)

  Covered name

  Strengths

  Strong AI server demand, 1Q26 earnings and gross margin beat expectations, server capacity planned to double in 2026, and EPS forecasts were materially raised.

  Weaknesses

  PC, motherboard, and graphics card businesses face demand softness in H2 2026 and pressure from rising component costs, while server margins remain below the company average.

  Comparison

  UBS views its valuation as broadly in line with global hardware peers, while branded hardware makers are in a more challenging margin cycle than upstream CPU, memory, and component suppliers.

  Risks

  Slower AI server demand, weaker-than-expected GPU/gaming PC demand, a weak PC replacement cycle, and pricing competition or inventory corrections that pressure margins.

• AI server business

  Primary growth driver

  Strengths

  In 1Q26, AI servers accounted for nearly 90% of server sales; the NVDA GB platform contributed about 20% of AI server shipments, and HGX, GB300, and Vera Rubin platforms support growth in 2026-2027.

  Weaknesses

  The GPU pass-through model results in profit contribution below the company average margin, and execution of capacity expansion plus supply chain stability remain key issues.

  Comparison

  Compared with PC and gaming hardware, AI server demand is stronger and more visible.

  Risks

  AI server demand stagnation, technical challenges, supply chain bottlenecks, or changes in customer pull-forward timing.

• PC, motherboard, and graphics card businesses

  Source of cyclical pressure

  Strengths

  In 1Q26, high-end motherboards and graphics cards benefited from pull-forward demand and higher ASPs, supporting strong short-term performance.

  Weaknesses

  Channels may have stocked up ahead of price increases, and demand could soften in H2 2026; a 10-20% rise in memory prices could also curb end-market demand.

  Comparison

  Compared with AI servers, this business is more dependent on the consumer and gaming cycle; after the RTX50 launch, supply and demand have moved toward balance and price support is weakening.

  Risks

  Graphics card demand slowing after the RTX50 launch cycle, a weak PC market, and rising inventory costs.

Key data

• 1Q26 revenueNT$105.057bnUp about 60% YoY and 18% QoQ, above market expectations for about 10.5% QoQ growth.
• 1Q26 gross margin12.0%Above UBS and market expectations of roughly 10%, supported by a high-end product mix and low-cost inventory.
• 1Q26 operating margin7.1%Up 2.8 percentage points QoQ.
• 1Q26 EPSNT$7.86Up 69% YoY and 77% QoQ, 68% and 55% above UBS and market expectations, respectively.
• 2026 server revenue forecast+52% YoYPrimarily driven by B300 HGX and GB300 racks, with a transition to Vera Rubin afterward.
• 2027 server revenue forecast+20% YoYSupported by HGX, Vera Rubin, and general-purpose servers.
• 2026 capex guidanceNT$2.5-2.7bnRaised from the prior NT$2.0-2.5bn range to support a doubling of server capacity.
• 2026/2027/2028 EPS revision magnitude+37% / +24% / +15%Reflects the earnings upside surprise and accelerated capacity expansion.
• Valuation12.4x / 11.1x 2027E/2028E P/EUBS believes this is broadly in line with global hardware peers.
• Forecast return4.1% share price upside, 3.3% dividend yield, 7.5% total returnForecast excess return of 1.3%.

Impact & implications

The investment implication of the report is that Giga-Byte's near-term earnings upgrades come from AI servers, a stronger product mix, and low-cost inventory, but the market has already partially priced in this strength. If server scale-up proceeds smoothly, revenue growth can remain durable; however, the GPU pass-through nature of server sales keeps margins below company average, while high memory prices may weigh on PC, motherboard, and graphics card demand. For investors, the key issue is not whether near-term results are strong, but whether server growth can meaningfully expand margins and offset the cyclical downtrend in traditional PC hardware.

Risks

• If AI server demand stalls, encounters technical challenges, or is constrained by supply chain bottlenecks, server sales could fall short of expectations.
• Weak GPU and gaming PC demand could cause graphics card sales to disappoint.
• A weak PC market could slow motherboard replacement cycles.
• Pricing competition, inventory corrections, or higher component costs could intensify margin pressure.
• The technology sector faces rapid technological change, intensifying competition, and macro-cycle volatility, leaving earnings forecasts and valuations highly uncertain.

What to watch

• The pace of deliveries from the US plant starting at the end of 2Q26, and completion of the new Taiwan plant in 3Q26.
• The ramp-up pace for B300 HGX, GB300 racks, and Vera Rubin platforms in H2 2026.
• Whether AI server revenue growth can translate into a higher overall company margin rather than only revenue expansion.
• Whether memory prices remain elevated and whether demand falls back after PC, motherboard, and graphics card price increases.
• The extent of price discounts and channel inventory changes after RTX50 supply-demand balance is reached.
• Whether the 2026-2028 EPS upgrades can be realized, especially the gross margin trend after low-cost inventory is consumed.