Montage Technology 1Q26 gross margin beat expectations, with accelerated ramp-up of new AI interconnect products

Overview

This report is Goldman Sachs' review of Montage Technology's 1Q26 results. The report argues that while revenue was slightly below expectations due to tight raw material supply and FX impact, significant gross margin improvement driven by product mix, better-than-expected net profit, and progress in new AI interconnect products support a continued positive view. Goldman Sachs maintains its Buy rating and raises the 12-month target prices for the A-share/H-share listings by 14.5%/14.2% to Rmb260/HK$306, respectively.

Core views

The key views are: first, 1Q26 gross margin of 69.8% was significantly above expectations, reflecting a higher mix of high-margin DDR5 products and the company's ability to prioritize products in a tight supply-demand environment; second, net profit of Rmb847mn exceeded expectations, with investment income providing an additional contribution; third, revenue contribution from new AI server-related products such as PCIe Retimer, CXL, MRCD/MDB, and CKD increased, validating the commercialization pace of new products; fourth, although short-term revenue forecasts were lowered, Goldman Sachs raised long-term gross margin assumptions and target valuation multiples, believing the company's pricing power and competitive positioning are better than previously expected.

Analysis framework

The report uses earnings comparison, earnings forecast revision, and relative valuation methodologies: it compares actual 1Q26 revenue, gross margin, operating profit, pre-tax profit, and net profit against Goldman Sachs forecasts, consensus expectations, QoQ, and YoY data; it also revises 2026-2032E earnings based on management disclosure regarding R&D and mass production progress of new products; the target price is based on 2030E P/E valuation, with market-based adjustments referencing the relationship between peer P/E and net profit growth.

Methodology notes

• Valuation methods2030E discounted P/E

  Derive the 12-month target price using forward earnings and the target P/E multiple

  The 12-month A-share target price of Rmb260 is based on 35x 2030E discounted P/E; the H-share target price of HK$306 is based on 37.8x 2030E P/E, while retaining an 8% valuation premium versus A-shares and assuming a 1.09 CNY/HKD exchange rate.

• Earnings AnalysisComparison of actual results versus expectations and versus YoY/QoQ

  Compare the company's actual performance against Goldman Sachs forecasts, consensus expectations, and historical quarters

  The report focuses on comparing 1Q26 revenue, gross profit, operating profit, pre-tax profit, net profit, EPS, and margins against GSe and consensus expectations, and explains the sources of the gross margin and net profit beat.

• Product CycleRamp-up path of new AI interconnect products

  Assess the sustainability of growth using new product revenue and R&D/mass production milestones

  The report tracks 2026 progress in R&D, tape-out, and mass production versions for products including MRCD/MDB, PCIe 6/CXL 3 Retimer, PCIe 7.0 Retimer/Switch, CXL 3.0 MXC, Ethernet PHY, and clock chips.

Asset mapping & comparison

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

• Montage Technology A-shares 688008.SS

  Primary covered target in the report

  Strengths

  Gross margin beat expectations, improved DDR5 product mix, growth in revenue from new AI interconnect products, and target price raised.

  Weaknesses

  1Q26 revenue was below expectations, affected by tight upstream material supply and FX impact.

  Comparison

  The A-share target price is based on 35x 2030E discounted P/E; the H-share target uses 37.8x 2030E P/E and retains an 8% valuation premium.

  Risks

  Memory interface IC market growth below expectations, slower-than-expected new product launches, and intensified competition.

• Montage Technology H-shares 6809.HK

  H-share valuation framework for the same company

  Strengths

  Shares the company's AI interconnect and memory interface chip growth story.

  Weaknesses

  Valuation and liquidity may differ from the A-share listing.

  Comparison

  Target price of HK$306, based on 37.8x 2030E P/E and a 1.09 CNY/HKD exchange rate assumption.

  Risks

  Assumptions on H-share premium versus A-shares, as well as FX and market risks.

Key data

• 1Q26 RevenueRmb1.461bnAbout 8% below Goldman Sachs' forecast of Rmb1.591bn and the consensus estimate of Rmb1.596bn, with 20% YoY growth.
• 1Q26 Gross Margin69.8%Above Goldman Sachs' forecast of 63.0% and the consensus estimate of 61.2%; 4Q25 was 64.5% and 1Q25 was 60.4%.
• 1Q26 Net ProfitRmb847mn30% above Goldman Sachs' forecast, 20% above the consensus estimate, and up 61% YoY.
• 1Q26 EPSRmb0.6930% above Goldman Sachs' forecast and 22% above the consensus estimate.
• New Product RevenueRmb269mnRevenue from four new product categories—MRCD/MDB, PCIe Retimer, CKD, and CXL MXC—accounted for about 19% of interface IC revenue.
• 2026E Revenue ForecastRmb8.066bnGoldman Sachs lowered its 2026E revenue forecast by 7%, reflecting below-expectation 1Q26 revenue and tight raw material supply.
• 2026E Net Profit ForecastRmb3.662bnGoldman Sachs raised 2026-2032E net profit forecasts by about 1% overall.
• Target Price RevisionA股Rmb260；H股HK$306Raised by 14.5% and 14.2%, respectively, versus the previous targets.

Impact & implications

If Goldman Sachs' view proves correct, Montage Technology's investment thesis would extend from a single DDR5 cycle beneficiary to a platform-level growth story in AI server interconnect chips. A higher mix of high-margin products and commercialization of new products could enhance earnings elasticity; however, near-term revenue remains exposed to supply chain and FX disruptions, and valuation is sensitive to long-term net profit growth and progress in AI interconnect products.

Risks

• Memory interface IC market growth may be weaker than expected.
• New product introduction and mass production progress may be slower than expected.
• Market competition may be more intense than expected, potentially compressing gross margin or valuation multiples.
• Continued tight upstream raw material supply may limit revenue recognition.
• RMB exchange rate fluctuations may affect revenue and profit performance.

What to watch

• Ramp-up of DDR5 Gen 4 and progress in Gen 5 customer sampling.
• Completion of engineering R&D for MRCD/MDB Gen 3 in 2026.
• R&D progress of mass production versions for PCIe 6/CXL 3 Retimer, as well as tape-out of engineering samples for PCIe 7.0 Retimer/Switch.
• R&D progress of the mass production version of the CXL 3.0 MXC chip in 2026.
• Whether new product revenue continues to increase as a proportion of interface IC revenue.
• Whether gross margin can remain at a high level after supply chain constraints ease.