Bank of America: Huaqin Technology’s AI servers double revenue as BofA cuts price targets amid declining gross margin

Why did third-quarter revenue far exceed expectations, and how did profits perform?

Growing AI server shipments drove revenue to 72.3 billion yuan in the third quarter of 2026, up 107% year on year and 37% quarter on quarter, exceeding BofA’s forecast and the market consensus by 24% and 21%, respectively.
Operating profit was 1.74 billion yuan, up 132% year on year and 55% quarter on quarter; BofA attributed this to operating leverage. Net profit was 1.32 billion yuan, up 57% year on year but down 32% quarter on quarter, broadly in line with the bank’s expectations.

Third-quarter overall gross margin fell to 6.7%, below 7.6% in the second quarter and 8.1% a year earlier. BofA said the server business’s buy-and-sell model, combined with rising memory prices, depressed gross margin.
The larger revenue base still helped operating margin rise from 2.1% in the second quarter to 2.4%; however, net margin fell from 3.7% to 1.8%, showing that the improvement in operating profit was not reflected to the same extent in net profit for the quarter.

Management said hyperscale cluster revenue reached 6 billion yuan in the third quarter, with monthly shipments reaching 400 racks. As shipments gradually increase and a second cloud service provider contributes revenue, the company expects revenue from the business to continue growing quarter on quarter in the fourth quarter.
Management expects shipments to a third cloud service provider to begin in the first quarter of 2027, driving hyperscale cluster revenue above 10 billion yuan in each quarter of 2027 and full-year data center revenue above 100 billion yuan.
BofA believes the company has comprehensive capabilities spanning CPU, GPU and switch design, and is more efficient than its peers. Management expects more component resources to flow to cloud service providers in 2027; on that basis, BofA believes procurement is unlikely to be a problem for Huaqin given its leading position.

BofA raised its 2026 revenue forecast from 210.3 billion yuan to 239.3 billion yuan, but only nudged its net profit forecast up from 5.536 billion yuan to 5.57 billion yuan; its gross margin forecast for the same period fell from 7.9% to 7.2%.
The bank maintained its Buy ratings on the A-shares and H-shares, but lowered its H-share price target from HK$105 to HK$85, using a 2027 forecast price-to-earnings multiple of 16 times, down from 20 times, citing recent weak sentiment toward the AI supply chain and Hong Kong equities; it lowered its A-share price target from 109.29 yuan to 94 yuan.