Rising AI capex continues to support server ODMs; FII target price raised, while Inspur is downgraded to Sell on valuation and share pressure

Overview

This report covers the Greater China technology hardware and AI server ODM chain. The core conclusion is that the AI capex cycle is still moving higher, and investments from U.S. and Chinese cloud vendors will continue to drive demand for AI servers, CPU servers, switches and related data center infrastructure. Goldman Sachs remains positive on FII, believing it has share-gain potential in U.S. cloud customers, AI server racks, CPO switches, liquid cooling, global capacity and R&D execution; meanwhile, it turns cautious on Inspur, arguing that although its China AI server business is still growing, the high-base share, competition, GPU-to-domestic-AI-chip migration and rich valuation will weigh on returns.

Core views

First, the AI capex upcycle is the industry theme: U.S. CSP and China CSP capex are both expected to grow 76% and 80% YoY in 2026E, respectively. Second, FII is the main beneficiary: its product coverage spans GPU modules, motherboards, AI servers, CPU servers, CPO switches and liquid cooling, and it has global manufacturing bases and supply-chain bargaining power. Third, rapid technology migration and rising raw-material costs raise entry barriers, which instead favors large-scale leaders with strong R&D and fast execution. Fourth, Inspur remains the domestic leader in China's AI server market, but growth is slowing from a high base; declining share, a higher proportion of direct sales to CSPs, margin pressure and valuation above its five-year average make the risk-reward unattractive.

Analysis framework

The report combines cloud vendor capex forecasts, AI server ODM share changes, product mix upgrades, gross margin and R&D expense assumptions, peer valuation mean reversion, and comparisons with Bloomberg consensus estimates to revise FII and Inspur earnings forecasts, target P/Es and 12-month target prices. FII is valued at 23x 2027E P/E; Inspur is valued at 21.1x 2027E EPS, with cross-checks against peer P/E, net profit growth and PEG ranges.

Methodology notes

• Valuation methodsForward P/E target price method

  Derive the 12-month target price by multiplying the target P/E by forward-year earnings

  FII's target price is based on 23x 2027E P/E; Inspur's target price is based on 21.1x 2027E EPS. The target multiples are derived from the regression relationship between peer P/E and forward net profit growth, operating margin and other fundamentals.

• Earnings forecastCapex- and share-driven model

  Map CSP capex, AI server shipments, product mix and market share to revenue, gross margin and net profit

  The report raises FII's 2026E-2028E net profit by 4%/7%/9%, mainly reflecting U.S. cloud AI capex, CPU server demand and share gains at FII; it lowers Inspur's 2027E-2028E net profit by 8%/15%, mainly reflecting margin compression and higher R&D spending on domestic AI chip platforms.

• Relative comparisonGS vs. Bloomberg consensus

  Compare Goldman Sachs forecasts with market consensus to identify expectation gaps

  For FII, Goldman Sachs' 2026E/2027E net profit is 2%/12% above Bloomberg consensus; for Inspur, Goldman Sachs' 2027E operating profit is 10% below Bloomberg consensus, reflecting its concerns about competition, CSP revenue mix and R&D spending.

Asset mapping & comparison

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

• Foxconn Industrial Internet (601138.SS)

  AI server ODM beneficiary of U.S. cloud AI capex

  Strengths

  Its product coverage includes AI server racks, GPU/ASIC/CPU servers, 800G/1.6T/CPO switches and liquid cooling; it has strong R&D, large scale, a well-developed global capacity footprint, and strong supply-chain bargaining power.

  Weaknesses

  Overall gross margin remains low, and raw-material costs plus customer bargaining power affect profit leverage; it remains exposed to competition in the iPhone component business and new factory ramp-up risk.

  Comparison

  Goldman Sachs' 2026E/2027E net profit forecast is 2%/12% above Bloomberg consensus, and it believes FII's share-gain potential in the technology migration environment is better than most ODM peers.

  Risks

  AI server demand or profitability could be lower than expected, smartphone component expansion could be weaker than expected, new factory ramp-up could be slower than expected, and iPhone shipments could come in below expectations.

• Inspur (000977.SZ)

  A domestic leader in China's AI server market, but downgraded to Sell

  Strengths

  It leads domestic peers in China's AI server shipments and revenue scale, serves major Chinese CSPs, government and enterprise clients, and covers AI training, inference, HPC and general-purpose servers.

  Weaknesses

  Market share declines from a high base, CSP direct sales and ODM businesses have lower gross margins, competition is intensifying, adaptation to domestic AI chip platforms requires higher R&D investment, and forward 12-month P/E is above the five-year average.

  Comparison

  Goldman Sachs' 2027E operating profit is 10% below Bloomberg consensus, and the target price implies about 2% downside, making risk-reward weaker than the average upside among Buy and Neutral names in Greater China technology coverage.

  Risks

  If China's generative AI demand is stronger than expected, domestic AI chip server migration is faster than expected, or competition is healthier than expected, Inspur's revenue, gross margin and market share could be better than Goldman Sachs forecasts.

• Huaqin Co.

  A potential beneficiary ODM of China's cloud AI server expansion

  Strengths

  It is expanding from smartphone and PC ODM into AI servers, and has server and switch integrated solution capabilities, allowing it to benefit from China's supernode trend.

  Weaknesses

  The report provides limited information and does not elaborate on valuation or earnings revisions.

  Comparison

  Goldman Sachs remains positive on Huaqin, with the logic leaning toward China's cloud AI server expansion, whereas FII is more exposed to U.S. cloud and global customers.

  Risks

  Changes in China CSP capex, product migration, competition and execution pace.

Key data

• U.S. CSP capex forecast2026E +76% YoY; 2027E +35% YoYFrom the GS Server TAM update cited in the report.
• China CSP capex forecast2026E +80% YoY; 2027E +20% YoYAI server and data center spending remain important drivers of Chinese cloud demand.
• FII target priceRmb107.2Raised 14% from the prior Rmb93.9, based on 23x 2027E P/E.
• FII implied upside45%The report maintains a Buy rating.
• FII earnings revisions2026E/2027E/2028E net profit raised by 4%/7%/9%Mainly driven by revenue, gross margin and product mix improvement.
• FII net profit growth2026E-2028E CAGR +41%; 2025E-2028E CAGR +53%The report believes AI infrastructure investment and share gains support re-rating.
• Inspur rating changeDowngraded from Neutral to SellReasons include declining market share, rich valuation and margin pressure.
• Inspur target priceRmb62.5Cut from the prior Rmb76.5, based on 21.1x 2027E EPS.
• Inspur earnings revisions2027E/2028E net profit cut by 8%/15%Mainly due to lower gross margin and increased R&D investment in domestic AI chip platforms.
• Inspur revenue growth view2026E-2028E revenue CAGR +22%Still benefiting from China's CSP AI capex, but growth and risk-reward are weaker than FII's.

Impact & implications

For portfolios, the report reinforces the view that AI data center capex is still flowing through to hardware segments such as server ODMs, switches, CPU servers and liquid cooling. It also shows that divergence within the same theme is widening. FII is positioned as the beneficiary with greater scale, customers, R&D and global capacity advantages; its valuation uplift is driven by both earnings upgrades and multiple expansion. Inspur, although benefiting from demand for China's AI infrastructure, may see margin erosion from domestic chip migration, competition and CSP direct-sales models, leaving insufficient valuation support.

Risks

• FII's AI server demand and profitability may be lower than expected.
• FII's smartphone component business may expand less than expected due to intense competition.
• FII's new factory ramp-up may be slower than expected.
• Lower-than-expected iPhone shipments could affect FII's component business.
• Inspur's market share in China's AI server market may continue to decline.
• Intensifying competition in China's AI server market could pressure Inspur's gross margin and ASP.
• The pace of migration from global high-end GPUs to domestic AI chip platforms, and the associated adaptation costs, could affect Inspur's supply chain and R&D expenses.
• If China's generative AI demand is stronger than expected, Inspur's Sell rating faces upside risk.

What to watch

• Whether U.S. CSP AI capex is further revised upward from 2026E-2028E.
• The growth rate of China CSP AI capex and the ROI of generative AI applications.
• FII's share changes in AI server racks, CPU servers, CPO switches and liquid cooling.
• Whether FII's gross margin can keep improving despite rising raw-material costs and changes in consignment models.
• The share trend of Inspur in China's AI server market and orders from major CSP clients.
• The pace of domestic AI chip server launches and Inspur's R&D progress in adapting to different domestic chip platforms.
• Whether competition in the AI server ODM industry affects ASPs, gross margins and market share.
• Changes in FII and Inspur's 12-month forward P/E relative to historical averages and the peer regression band.