Asia Vital Components (3017): J.P. Morgan assumes Overweight coverage of AVC as higher-spec AI cooling systems drive a multi-year content and margin upgrade cycle

Overview

J.P. Morgan assumes Overweight coverage of Asia Vital Components, arguing that a new generation of AI-server liquid-cooling upgrades should materially increase AVC's content per system, revenue and margins through 2028. Its NT$5,200 December 2027 target reflects an expected earnings-upgrade cycle rather than a change in the core valuation framework.

Core views

J.P. Morgan argues that AVC is the clearest beneficiary of a new AI-server cold-plate upgrade cycle. The central mechanism is rising cooling content per compute tray as GPU and ASIC systems require more sophisticated thermal designs. The report expects double-sided cold plates to be used in AWS Trn3 and AMD MI450 compute trays from 4Q26 and potentially in Nvidia VR Ultra compute trays from 2Q27 or 2H27. Backside cooling would add cold-plate units, while possible use of diamond and copper materials in VRU systems would raise value further. J.P. Morgan estimates VRU cooling content at US$3,000-3,500 per tray, roughly 50% above the prior generation. It also cites TPU v8's gold-plating design and additional plates for surrounding ICs, and expects TPU v9's larger die and higher thermal-design power to increase the likelihood of double-sided adoption. The report sees AVC as particularly well placed because it believes the company has secured major shares in the relevant GPU and ASIC programs and currently holds about 50% share in each AI project. Beyond Nvidia VRU, it expects broader ASIC cooling complexity to develop in 2H27 and 2028, including Google TPU v9 and AWS Trn4. Liquid-cooling adoption in OSFP and ELSFP optical modules is a further source of demand. The upside case would strengthen if TPU v9 adopts double-sided designs and Trn4 adds incremental cold plates for NPO/CPO applications. Near-term earnings momentum is expected to come from product mix, manufacturing execution and pricing. J.P. Morgan forecasts gross margin of 34% in 3Q26 and 35% in 4Q26, above consensus of about 33% and 34%, respectively, following 30% and 33% in 1Q26 and 2Q26. The report attributes this to a larger ASIC contribution, higher yield and automation, plus successful ASP increases on selected cold-plate projects, mainly Nvidia/Mellanox switch trays in its view, to offset higher material and overtime-labor costs. With VR200 and liquid-cooled Trn3 and TPU v8 entering mass production, it models revenue growth of 18% quarter on quarter in 3Q26 and a further 19% in 4Q26, above consensus by 1% and 5%. J.P. Morgan's forecast is materially above consensus because it incorporates these four earnings levers: selected switch-tray ASP increases; VRU double-sided designs and diamond-copper adoption; more complex ASIC cooling; and structural margin expansion. Its 2026/27/28 EPS forecasts are 3%/16%/16% above Bloomberg consensus. It forecasts revenue growth of 61%/57%/22% year on year in 2026/27/28, gross margins of 33%/36%/37%, and EPS growth of 120%/73%/27%. The report expects stronger mix from VR200 and new ASIC ramps to support margins in the near term, with further specification upgrades underpinning expansion through 2028. The valuation case uses a 22x 2028E P/E multiple to derive the NT$5,200 December 2027 target, compared with NT$4,000 previously. The multiple is positioned at the mid-to-high end of AVC's 15-25x historical P/E range since the AI-server boom began, while the stock was trading at about 20x 12-month forward P/E according to the report. J.P. Morgan believes the premium is supported by the expected multi-quarter earnings-upgrade path, particularly in 2027-28. It expects share-price outperformance over the next 6-12 months as earnings upgrades arrive faster than for the broader market.

Analysis framework

The report links expected changes in AI-server and ASIC cooling specifications to AVC's content per tray, then translates higher content, ASPs, project ramps, yield improvement and product mix into revenue and margin forecasts. It compares J.P. Morgan's estimates with Bloomberg consensus and values the resulting 2028 earnings using a P/E multiple benchmarked against AVC's historical AI-server-boom trading range.

Methodology notes

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  AI-server and ASIC cooling-specification upgrades are translated into AVC's cooling content, pricing, volume and profitability.

  The report treats changes in system architecture and thermal requirements as upstream drivers of the number, materials and value of cold plates supplied by AVC.

• Industry AnalysisVolume-price decomposition

  Revenue and margin upside is assessed through additional cold-plate units, higher content per tray, ASP increases and mix improvement.

  J.P. Morgan separates the effect of more cooling hardware and higher-value materials from pricing, yield and ASIC mix to explain earnings growth.

• Valuation methodsP/E and PEG Valuation

  22x 2028E P/E valuation.

  The price target applies a forward earnings multiple that J.P. Morgan places at the mid-to-high end of AVC's historical 15-25x P/E range since the AI-server boom began.

Asset mapping & comparison

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

• Asia Vital Components (3017.TW)

  Primary covered company and expected beneficiary of higher-spec AI-server liquid cooling.

  Strengths

  J.P. Morgan cites major share positions in GPU and ASIC projects, higher entry barriers for cold-plate modules, yield improvement, automation and higher-margin ASIC mix.

  Weaknesses

  Cold plates may face greater standardization after Nvidia classified them as Group A components from VR200.

  Comparison

  The report expects AVC's earnings estimates to exceed Bloomberg consensus by 3%/16%/16% in 2026/27/28 and considers its approximately 50% share in each AI project a leading position.

  Risks

  Delayed or limited cooling-specification upgrades, market-share loss and ASP or gross-margin pressure.

Key data

• Price targetNT$5,200December 2027 target; prior target was NT$4,000.
• Current share priceNT$3,400.00As of 29 September 2026; target implies approximately 55% upside.
• VRU cooling contentUS$3,000-3,500 per trayAbout 50% higher than the prior generation under the report's double-sided and new-material assumptions.
• EPS versus Bloomberg consensus3%/16%/16% above consensusJ.P. Morgan estimates for 2026/2027/2028.
• Revenue growth forecast61%/57%/22%Year-on-year growth forecast for 2026/2027/2028.
• Gross margin forecast33%/36%/37%Forecast for 2026/2027/2028; 2Q26 gross margin was 33%.
• EPS growth forecast120%/73%/27%Year-on-year forecast for 2026/2027/2028.

Impact & implications

The report's conclusion is that higher cooling content and a favorable ASIC-led product mix could drive earnings upgrades beyond prevailing consensus expectations, supporting a valuation above the stock's current forward P/E. Its projected catalyst path spans 2H26 production and margin progress, followed by GPU and ASIC specification upgrades from 2027 into 2028.

Risks

• Next-generation AI GPU and ASIC launches could be delayed or bring less cooling-specification improvement than expected, requiring lower growth estimates.
• AVC could lose market share despite the report's view that high entry barriers and customers' preference for two to three suppliers limit this risk.
• Cold-plate standardization and competition could pressure ASPs and gross margins.

What to watch

• Adoption timing of double-sided cold plates in Nvidia VRU, Google TPU v9, AWS Trn3 and AMD MI450 systems.
• Whether diamond-and-copper materials are adopted in VRU cold plates.
• 3Q26 and 4Q26 gross-margin delivery versus J.P. Morgan's 34% and 35% forecasts.
• Mass-production progress for VR200, Trn3 and TPU v8, and subsequent ASIC project ramps.
• Evidence that AVC maintains share in high-spec GPU and ASIC cooling projects.