Ruijie Networks: Strong AI switch demand, but component shortages delay deliveries

Why was third-quarter growth still below expectations?

Ruijie Networks’ revenue in the third quarter of 2026 was 5.764 billion yuan, up 43% year on year and slightly below HSBC Qianhai’s and market expectations; shortages of GPUs, switch chips, memory and PCBs slowed switch deliveries below expectations.
Net profit attributable to shareholders for the same period was 387 million yuan, up 69% year on year and in line with market expectations. Gross margin rose from 30% in the second quarter to 33%. Despite higher raw material costs and a greater share of revenue from white-box switches, HSBC Qianhai believes this reflects cost management and economies of scale.
In the first three quarters of 2026, data center networking revenue rose 68% year on year, driven by faster delivery of internet customer orders and a larger contribution from high-speed switches; revenue from 400G switches was 4.8 billion yuan, up 37%, while 800G revenue was 3.5 billion yuan, up about 380%.

Third-quarter SuperPOD switch revenue was 150 million yuan, exceeding the approximately 120 million yuan recorded in total in the first half of 2026. HSBC Qianhai expects a more pronounced ramp-up from 2027 in Scale-up switches, which provide internal interconnection for large computing clusters.
The bank previously estimated that SuperPOD could bring Ruijie approximately 12 billion yuan in incremental demand for Scale-up switches from the second half of 2026 through 2027; this opportunity depends on faster SuperPOD adoption and improved supply of core components.
At the end of the third quarter, the company’s inventories stood at 9.1 billion yuan, mainly reflecting deliberate stockpiling of core chips and components. HSBC Qianhai sees this as a sign of strong order visibility and expects the inventories to convert into revenue as SuperPOD adoption accelerates.

Taking into account third-quarter results and delays in large SuperPOD switch deliveries, HSBC Qianhai cut its revenue forecasts for 2026 through 2028 by 1%, 3% and 3%, respectively. The bank also raised its gross margin assumptions but, expecting higher R&D spending, lowered its net profit forecasts for the three years by 3%, 7% and 3%, respectively.
In September, the company disclosed a preliminary convertible bond issuance plan, seeking to raise 2.6 billion yuan for R&D into high-speed interconnection networks for large supercomputing clusters and high-speed network switching units for high-density computing clusters. HSBC Qianhai raised its expense forecasts accordingly.
After the revisions, the bank forecasts 32.481 billion yuan in revenue and 3.335 billion yuan in net profit for 2027, respectively 7% and 21% above Wind consensus estimates; the difference primarily reflects more optimistic views on data center switch sales volumes, average selling prices and economies of scale.

HSBC Qianhai maintained its Buy rating and cut its target price from 139 yuan to 105 yuan. It lowered its 2027 earnings per share forecast from 3.23 yuan to 3.00 yuan, while reducing its target price-to-earnings multiple from 43 times to 35 times; the new target implies approximately 41% upside from the 26 October closing price of 74.36 yuan.
The lower valuation multiple also reflects changes in peer benchmarks: peers’ average forecast price-to-earnings multiple for 2027 fell from the previously used 28 times to 20 times, while their forecast compound annual earnings per share growth for 2025 through 2028 fell from 54% to 48%.
Supply and customer concentration remain constraints on growth: the company sources its switch chips mainly from Broadcom, while domestic alternatives still lag in performance and production capacity; major Chinese internet companies contributed about 45% of revenue in 2025, and a simultaneous slowdown in their capital expenditure cycles would affect company growth. Data center white-box switches have lower gross margins than branded campus switches, and a rising share could also cause gross margin volatility.