Why is year-over-year growth strong while sequential growth is flattening over the next three months?

  • Goldman Sachs expects the eight companies it covers to post average year-over-year revenue growth of 68%, 60% and 44% in October 2026, November and December, respectively. Sequentially, it expects a decline of 2%, no change and growth of 1%, respectively.
  • Year-over-year growth comes from continued increases in AI server shipments, upgrades to the PC product mix, new mobile phones and higher selling prices driven by high memory costs. Sequential growth is constrained by AI server model transitions, demand pulled forward and subdued consumer electronics demand amid high memory costs.
  • Memory costs also affect the outlook for overall mobile phone volumes. Goldman Sachs previously lowered its global smartphone shipment forecast to 1.1 billion units in 2026, down 10% year over year. However, the bank expects leading brands to outperform the market thanks to their brands, purchasing capabilities and customers' spending power.

Why is the ramp-up of new racks widening the gap in manufacturers' growth rates?

  • Goldman Sachs expects Hon Hai's revenue to reach 4.2 trillion New Taiwan dollars in the fourth quarter of 2026, up 61% year over year and 39% sequentially. The bank identifies higher selling prices and early deliveries of next-generation AI server racks and co-packaged optics switches, together with new mobile phones, as the main drivers.
  • Goldman Sachs expects Hon Hai to be the first to deliver the latest server model, approximately two to three months ahead of peers. After GPU racks, LPU racks are expected to provide the next phase of growth starting in December.
  • Quanta's transition is proceeding more slowly: revenue fell 23% sequentially in September, which Goldman Sachs attributes to the AI server model transition. Although the bank expects a monthly recovery from October to December, fourth-quarter revenue is still forecast to fall 4% sequentially, reflecting the high third-quarter base and the gradual ramp-up of new racks.
  • Wiwynn, meanwhile, is benefiting from customers' new ASIC servers, demand for general-purpose servers and fourth-quarter mass production of GPU racks. Goldman Sachs expects its fourth-quarter revenue to rise 60% year over year and 8% sequentially, and maintains a buy rating.

How far can AI servers offset PC weakness?

  • Wistron's revenue rose 87% year over year in September, but was 18% below Goldman Sachs' forecast; the bank attributes the shortfall to fluctuations in the timing of shipments of high-priced AI products. PC shipments in the same month totaled 1.5 million units, down 32% year over year.
  • Although Goldman Sachs expects demand pulled forward to reduce Wistron's PC shipments in the second half compared with the first, it expects the ramp-up of new GPU server racks to offset the impact and drive second-half revenue 41% higher than in the first half.
  • Compal shipped 1.7 million PCs in September, down 32% year over year. Goldman Sachs nevertheless expects fourth-quarter revenue to rise 46% year over year and 15% sequentially, primarily due to the ramp-up of AI server racks and the expansion of its business from motherboards into system assembly.
  • Inventec's revenue rose 18% sequentially in September. Goldman Sachs expects it to fall sequentially in October because of a high base, component shortages and weak PC demand. The bank nevertheless raised its net profit forecasts for 2026 through 2028 by 9%, 6% and 14%, respectively, mainly reflecting a lower expense ratio resulting from higher revenue and lower research and development spending.

Why does Pegatron retain a sell rating despite a sharp increase in revenue forecasts?

  • Pegatron's revenue rose 87% year over year and 143% sequentially in September, exceeding Goldman Sachs' forecast by 64% and reflecting a rapid ramp-up in AI servers. Goldman Sachs expects fourth-quarter revenue to rise 62% year over year and 33% sequentially.
  • Goldman Sachs raised its Pegatron revenue forecasts for 2026 through 2028 by 16%, 28% and 27%, respectively, but raised its net profit forecasts by only 4%, 6% and 4%. This is because AI server rack gross margins are far below those of the company's other products, so revenue expansion produces a smaller increase in gross profit.
  • Citing a relatively high valuation, Goldman Sachs maintained its sell rating and lowered its 12-month price target from 76.9 New Taiwan dollars to 73.3 New Taiwan dollars. Its target price-to-earnings multiple was reduced from 10.8 times to 9.7 times expected 2027 earnings.