Growth in AI PCBs and ABF substrates accelerates, while specification upgrades and tight supply jointly support profitability improvement

Overview

The report tracks the operating performance of Asian AI PCB, HDI, and ABF packaging substrate suppliers in 2Q26, upstream material shortages, and capital expenditure and capacity plans for 2027—2028. Its core view is that AI hardware specification upgrades are simultaneously driving revenue, average selling prices, and margins, while the slow release of new capacity means industry supply tightness is unlikely to be fully alleviated over the coming quarters or even in 2027.

Core views

Industry conditions continued to improve in 2Q26. Revenue at leading AI PCB companies grew approximately 45% YoY and 18% QoQ, and the report expects this momentum to continue into 2H26. Among non-substrate AI PCB manufacturers, Shengyi, GCE, and WUS recorded the strongest growth; VGT's revenue increased 38% YoY and 13% QoQ in US dollar terms, but upfront labor and depreciation costs ahead of the ramp-up of its new plant caused gross margin to decline QoQ. Delton's CPU board PCB revenue doubled YoY in 2Q, while gross margin rose to 41%, the highest among the report's sample, supported by general-purpose server boards, ASIC MLPCB demand, and profitability at its Thailand plant. Zhen Ding's revenue from IC substrates and PCBs for servers and optical transceiver modules grew 40% QoQ and accounted for 23% of 2Q26 revenue, up from 20% in 1Q26, showing that new entrants and traditional consumer electronics PCB manufacturers are expanding their AI-related businesses. Growth and profitability improvement were even more pronounced for ABF substrates. Gross margins at companies including Unimicron, Ibiden, Kinsus, and Nan Ya PCB expanded significantly QoQ, mainly driven by higher average selling prices and improved product mix. ABF substrate revenue among the top eight manufacturers in 1Q26 had already exceeded the 4Q22 peak, and 2Q26 YoY growth approached 50%; the report also expects full-year 2026 revenue at major substrate manufacturers to grow approximately 60% YoY. Demand is broad-based across CPUs, GPUs, ASICs, and networking chips, while contract liabilities at major suppliers began increasing in 2Q26, reflecting stronger customer commitments and improved order visibility. Market pricing also reflects differences in scarcity: ABF substrate companies have recovered to new highs following the recent correction, while PCB suppliers remain well below their previous peaks; the report attributes the higher valuations of ABF companies to more severe supply shortages. The next stage of growth will come not only from volume but also from product specification upgrades. NVIDIA Vera Rubin and Google TPU v8 are expected to begin initial shipments in 2H26 and drive PCB and substrate demand in 2027. According to the report, MLPCB layer counts required for AI systems will increase from approximately 20 layers to 30—44 layers, adoption of 6+N+6 HDI designs will expand, and penetration of M8 and higher-grade CCL and HVLP-4 copper foil will rise. Specifically, compared with GB300, NVIDIA VR200 upgrades the compute tray PCB from 22 to 26 layers and the copper foil from HVLP-3 to HVLP-4; the switch tray is upgraded from 22 layers to 32-layer MLPCB with HDI, while CCL is upgraded from M8 to M8.5; VR200 also adds a 44-layer midplane PCB using M8.5 CCL and HVLP-4 copper foil. The UBB PCB for Google TPU v8 is upgraded from 28 layers in TPU v7 to 36—40 layers, with CCL upgraded from M7 to M8 and copper foil from HVLP-2 to HVLP-3; the CPU board increases from 16—18 layers to 22 layers. 1.6T optical modules constitute another technology upgrade path. Their PCB process is shifting from the conventional subtractive process or standard HDI commonly used in 800G products to mSAP HDI to achieve finer line widths and higher routing density: 400G line width/spacing exceeds 50/50 microns, 800G is approximately 30/30 to 50/50 microns, and 1.6T declines further to 25/25 to 30/30 microns. Zhen Ding, VGT, and Compeq have announced plans to expand mSAP capacity over the next 12 months; although Unimicron is a leading mSAP supplier, its current expansion focus remains ABF substrates rather than HDI. Meanwhile, NVIDIA and its supply chain continue to advance the development of PCB backplanes for Kyber racks. The supply side has entered a new investment cycle, but capacity expansion involves a significant time lag. The overall PCB industry began a new capital expenditure cycle in 2025, and industry capital expenditure is expected to grow 70% in 2026, with Zhen Ding, VGT, and Unimicron as the major spenders. Because substantial investment is initially allocated to plant construction, capital expenditure may remain elevated during the equipment procurement phase in 2027; the report expects MLPCB and HDI supply to remain tight until new capacity is fully ramped, potentially through 2H27. Upstream material shortages have already triggered several rounds of price increases, and T-glass, HVLP-4 copper foil, and high-end CCL may remain in short supply over the coming quarters due to high technical barriers, slow yield ramp-up, and limited equipment supply. New capacity at Nittobo and yield improvements at second-tier manufacturers are expected to alleviate the T-glass shortage in 1H27, but the shortage of high-end CCL may persist longer. Upstream CCL has also entered an expansion cycle. EMC plans to begin ramping its Guanyin plant in Taiwan in 4Q26 and, together with new plants in Mainland China and Malaysia, guides for 50% capacity growth in 2027; the commissioning of TUC's Thailand plant has been delayed by several months due to long equipment delivery lead times and is now expected in 3Q26, with total capacity planned to expand 45% in the following year. Prismark expects low-coefficient-of-thermal-expansion copper-clad laminate supply to catch up with demand in the following year. The market had also been concerned that Ajinomoto would cut ABF film supply to Chinese customers by approximately 30%, but the company strongly denied this, with management stating that ABF film demand growth and specification upgrades would continue into the September quarter. ABF substrates themselves only entered a new capital expenditure cycle in 2026, while customer prepayments, capital expenditure sharing, and long-term agreements have reduced the risks associated with supplier expansion. The market expects substrate industry capital expenditure to grow approximately 80% in 2026, and FY26 capital expenditure expectations for major suppliers have risen 66% since the beginning of the year. However, most new ABF capacity will not come online until 2028, so the report expects supply to remain tight in 2027. Unimicron raised its 2026 capital expenditure budget from NT$19.4bn to NT$53.7bn and aims to expand ABF capacity by 40% YoY by the end of 2026, with new facilities in Kaohsiung KF and Yangmei expected to contribute further expansion in 2H27 and 2028, respectively. Ibiden guides for FY27/3E capital expenditure of ¥210bn, accounting for more than 40% of its three-year ¥500bn substrate investment plan. Other manufacturers are also increasing investment. Kinsus plans to invest approximately NT$23.5bn during 2026—2028, including NT$7—8bn in 2026; phase one of Yangmei K6 is expected to increase the share of AI-related revenue from 5%—10% in the previous year to 10%—15% in 2026, while phase two in 2027 is expected to add approximately 25% capacity to reach 50 million units per month. Nan Ya PCB announced an additional NT$19.6bn investment in July, raising expected FY26 capital expenditure to approximately NT$40bn. SEMCO expects ABF capacity to be fully utilized in 2H26 and has reportedly registered approximately KRW1.8tn, or approximately US$1.4bn, for phase-two investment in Vietnam targeting robotics, intelligent driving, and AI. AT&S guides for FY26/27 capital expenditure of €1.0—1.2bn, announced a €1.5—2.0bn investment plan in Malaysia in June, and continues to expand its Chongqing plant. At the individual stock level, Unimicron faces a short-term country-of-origin labeling investigation. Taoyuan prosecutors investigated alleged labeling irregularities involving PCB products on August 28; PCBs and HDI account for approximately 35% of the company's revenue, but Bernstein believes the products involved represent only a very small portion of this business. The investigation may therefore cause short-term selling pressure but is unlikely to materially affect fundamentals, especially given the tight ABF supply expected over the next two years. The report forecasts revenue and EPS CAGRs of 33% and 117%, respectively, for 2025—2028, while channel checks indicate upside risk to the forecasts. Unimicron is rated Outperform with a target price of NT$990, based on 27 times the average 2027—2028 EPS of NT$36.9. For Ibiden, the report remains positive on its AI positioning. Management has become more proactive on pricing and confirmed that new products are priced higher, with improvement broadly spanning different customers rather than being concentrated in a specific product or end market. The report expects revenue to grow at a 33% CAGR over the next three years to ¥980bn; driven jointly by GPU and CPU demand, high utilization, and high selling prices, operating profit is expected to rise from ¥62bn in FY26/3 to ¥344bn in FY29/3E. The company is rated Outperform with a target price of ¥29,000, based on FY29/3 EPS of ¥829 and a 35 times P/E multiple. Ajinomoto's ABF film revenue and business profit grew 54% and 77%, respectively, in the June quarter, with operating leverage rising to 1.4 times but remaining below the historical range of 1.5—1.7 times. The report therefore concludes that the impact of price increases has not yet emerged. Management stated that ABF film demand growth and specification upgrades would continue into the September quarter and denied rumors of a 30% supply cut to Chinese customers. The company is rated Outperform with a target price of JPY7,300, primarily based on 35.0 times next-12-month P/E and NTM+1 EPS of JPY207; as a cross-check, the DCF implies an FY3/28E P/E of 34.8 times, assuming a WACC of 8.5% and a terminal growth rate of 3.5%, while the SOTP analysis implies a P/E of 35.2 times.

Analysis framework

The report first compares quarterly revenue, gross margins, and operating margins across major PCB, HDI, and ABF suppliers, then decomposes the changes into drivers such as shipment volume, average selling prices, product mix, and new plant costs. It subsequently derives the unit value of PCBs and substrates from changes in the technical specifications of NVIDIA, Google, and 1.6T optical modules, and then assesses supply tightness and order visibility by combining upstream material supply and demand, capital expenditure, capacity commissioning schedules, and contract liabilities. Finally, the report develops earnings forecasts for the three explicitly covered companies and derives target prices using P/E, DCF, and SOTP frameworks.

Methodology notes

• Industry/Sector Analysis FrameworkSupply-demand framework

  Supply-demand balance analysis for PCBs, ABF substrates, and key materials

  The report compares AI demand, customer commitments, and specification upgrades with the commissioning and yield ramp-up schedules of new capacity to determine how long tight supply will persist and why pricing and margins can improve.

• Industry/Sector Analysis FrameworkUpstream-Midstream-Downstream Supply Chain Transmission

  Transmission of AI accelerator and optical module specifications to PCBs, substrates, and materials

  Starting from upgrades in layer counts, HDI, CCL, and copper foil for Vera Rubin, TPU v8, and 1.6T optical modules, the report explains how end-market computing performance requirements translate into demand for PCBs, ABF substrates, and upstream materials.

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Decomposition of shipments, average selling prices, and product mix

  The report decomposes revenue and margin improvement into shipment growth, higher ASPs, and a rising share of high-end products, while attributing VGT's gross margin decline to labor and depreciation costs incurred before the new plant commenced production.

• Company Fundamentals and Financial FrameworkOperating/Financial Leverage Analysis

  Operating leverage of Ajinomoto's ABF film business

  The report compares operating leverage of 1.4 times with the historical range of 1.5—1.7 times and concludes that current earnings growth has not yet fully reflected price increases.

• Valuation MethodPE/PEG valuation

  Target P/E valuation

  Unimicron is valued at 27 times the average 2027—2028 EPS of NT$36.9, Ibiden at 35 times FY29/3 EPS of ¥829, and Ajinomoto at 35.0 times next-12-month earnings based on NTM+1 EPS of JPY207.

• Valuation MethodDCF Discounted Cash Flow

  Ajinomoto DCF cross-check

  The report uses a WACC of 8.5% and a terminal growth rate of 3.5% for the DCF valuation, producing a result equivalent to an FY3/28E P/E of 34.8 times.

• Valuation MethodSOTP Valuation

  Ajinomoto sum-of-the-parts valuation

  The report uses the sum of valuations for each business segment as a second cross-check, producing a result equivalent to a P/E of 35.2 times.

Asset mapping & comparison

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

• Unimicron (3037.TT)

  A PCB, HDI, and ABF substrate supplier explicitly covered by Bernstein, with expansion focused on ABF.

  Strengths

  Tight ABF supply, a target of 40% YoY capacity growth by the end of 2026, and the report's forecasts of 33% and 117% CAGRs in revenue and EPS, respectively, during 2025—2028.

  Weaknesses

  PCBs and HDI account for approximately 35% of revenue, while the recovery of HDI yields and margins still requires monitoring; mSAP expansion has a lower priority than ABF.

  Comparison

  Compared with peers expanding mSAP HDI capacity, the company is currently more focused on ABF substrates.

  Risks

  The country-of-origin labeling investigation, aggressive capacity expansion by competitors, a slower-than-expected recovery in HDI yields, and macroeconomic and tariff pressures affecting smartphone and PC demand.

• Ibiden (4062.JP)

  A core ABF substrate supplier explicitly covered by Bernstein, benefiting from GPU, CPU, and EMIB-T demand.

  Strengths

  New products command higher prices, and price increases span different customers; the report expects revenue to grow at a 33% CAGR over the next three years to ¥980bn and FY29/3E operating profit to reach ¥344bn.

  Weaknesses

  Large-scale capital expenditure may create significant depreciation pressure.

  Comparison

  The report believes its pricing improvement does not depend on a single customer, product, or end market and has broad coverage.

  Risks

  Persistent pricing pressure caused by industry oversupply, an accelerating loss of share in NVIDIA products, and higher-than-expected capital expenditure burdens and depreciation.

• Ajinomoto (2802.JP)

  An ABF film supplier explicitly covered by Bernstein and an important upstream material provider for ABF packaging substrates.

  Strengths

  ABF film revenue and business profit grew 54% and 77%, respectively, in the June quarter, while demand growth and specification upgrades are continuing into the September quarter.

  Weaknesses

  Operating leverage of 1.4 times remains below the historical range of 1.5—1.7 times and does not yet reflect the contribution from price increases.

  Comparison

  The report primarily uses P/E valuation and cross-checks the target price using DCF and SOTP.

  Risks

  Natural disasters affecting the sole production site for functional materials, entry by new competitors or significant capacity expansion by Sekisui, and changes in packaging technology that reduce demand for ABF thermal barrier materials.

Key data

• 2Q26 revenue growth at leading AI PCB companiesApproximately 45% YoY, 18% QoQThe report expects growth momentum to continue into 2H26.
• VGT 2Q26 revenue growth38% YoY, 13% QoQIn US dollar terms; upfront costs for the new plant's ramp-up caused gross margin to decline QoQ.
• Delton 2Q26 performanceRevenue doubled YoY, gross margin 41%The highest gross margin among the report's sample.
• Zhen Ding's non-consumer-related businessRevenue grew 40% QoQ and accounted for 23% of 2Q26 revenueThe share was 20% in 1Q26, including IC substrates and PCBs for servers and optical transceiver modules.
• ABF substrate revenue growth in 2Q26Nearly 50% YoYJointly driven by price increases and shipment growth.
• 2026E revenue growth at major ABF manufacturersApproximately 60% YoYThe report's chart estimates for eight major suppliers.
• 2026E overall PCB capital expenditureUp 70% YoYA substantial portion of spending is initially allocated to plant construction, while equipment procurement will keep capital expenditure elevated in the following year.
• 2026E substrate industry capital expenditureUp approximately 80% YoYFY26 capital expenditure expectations for major suppliers have risen 66% since the beginning of the year.
• Unimicron's 2026 capital expenditureNT$53.7bnRaised from the initial plan of NT$19.4bn.
• Unimicron's ABF capacity targetUp 40% YoY by the end of 2026Subsequent new capacity is expected to be released gradually in 2H27 and 2028.
• Unimicron's 2025—2028 forecastsRevenue CAGR 33%, EPS CAGR 117%Channel checks indicate upside risk to the forecasts.
• Ibiden revenue forecast33% CAGR over the next three years, reaching ¥980bnDriven by GPUs, CPUs, and EMIB-T.
• Ibiden operating profit forecastFY29/3E ¥344bnCompared with ¥62bn in FY26/3.
• Ajinomoto's ABF film business in the June quarterRevenue grew 54%, business profit grew 77%Operating leverage was 1.4 times, below the historical range of 1.5—1.7 times.
• Kinsus investment during 2026—2028Approximately NT$23.5bnIncluding planned investment of NT$7—8bn in 2026.
• Kinsus AI-related revenue share10%—15% in 2026Compared with 5%—10% in the previous year.
• SEMCO phase-two investment in VietnamApproximately KRW1.8tn, approximately US$1.4bnTargeting ABF substrates for robotics, intelligent driving, and AI.
• AT&S FY26/27 capital expenditure€1.0—1.2bnIt also announced a €1.5—2.0bn investment plan in Malaysia.

Impact & implications

The report believes that AI hardware demand has shifted from merely increasing shipment volumes to simultaneously raising PCB layer counts, HDI complexity, CCL grades, and copper foil specifications. Consequently, suppliers of high-end PCBs, ABF substrates, and key materials can benefit simultaneously from improvements in volume, average selling prices, and product mix. Because constructing new plants, procuring equipment, and ramping yields take considerable time, rising capital expenditure will not immediately eliminate shortages, and support for pricing and profitability may extend through 2027; however, the ultimate degree of benefit will depend on whether each manufacturer can expand capacity on schedule and stabilize yields.

Risks

• The country-of-origin labeling investigation involving Unimicron's PCB products may create short-term compliance pressure and market selling pressure.
• Aggressive ABF capacity expansion by competitors may delay the market recovery.
• The recovery of Unimicron's HDI yields and margins may be slower than expected.
• Macroeconomic and tariff pressures may delay the smartphone and PC recovery and affect capacity utilization across multiple Unimicron products.
• Natural disasters may disrupt the supply chain at Ajinomoto's sole production site for functional materials.
• Entry by new Build Up Film competitors or significant near-term capacity expansion by the existing competitor Sekisui may intensify competition facing Ajinomoto.
• Advances in IC packaging substrate technology may reduce demand for thermal barrier materials such as ABF.
• Competition from Chinese MSG producers may expand from the B2B market into branded products.
• Value-destructive acquisitions by Ajinomoto in healthcare may create downside risk.
• Industry overcapacity may subject Ibiden to persistent pricing pressure.
• Ibiden's share in NVIDIA products may decline faster than expected.
• Ibiden's capital expenditure burden and depreciation drag may be greater than expected.

What to watch

• Track the initial shipments of Vera Rubin and Google TPU v8 in 2H26 and their impact on PCB, HDI, and ABF demand in 2027.
• Monitor whether contract liabilities at major ABF suppliers continue to rise to validate customer commitments and order visibility.
• Watch whether the T-glass shortage eases in 1H27 as Nittobo and second-tier suppliers expand capacity and improve yields.
• Track the supply status and subsequent price increases for high-end CCL, HVLP-4 copper foil, and ABF film.
• Monitor whether new MLPCB and HDI capacity can complete its ramp-up as scheduled in 2H27.
• Watch the commissioning progress of most new ABF capacity in 2028 and whether supply and demand remain tight in 2027.
• Track the scope of Unimicron's country-of-origin labeling investigation and its actual impact on the PCB and HDI businesses.
• Monitor Ajinomoto's ABF film demand, specification upgrades, and changes in operating leverage in the September quarter.
• Track progress in the adoption of mSAP HDI by 1.6T optical modules and execution of expansion plans by Zhen Ding, VGT, and Compeq over the next 12 months.