Huaqin Technology’s AI servers lift revenue, while lower gross margin offsets part of the growth
Huaqin Technology’s revenue in the third quarter of 2026 was 25% above Goldman Sachs’ forecast, but its gross margin was below expectations and net profit attributable to shareholders fell 32% quarter on quarter. Management expects Supernode customer expansion to drive data-center business growth.
Original source：Goldman Sachs (Asia) L.L.C.First published on Unhidea：Original source date：
Key takeaway
A ramp-up in AI server shipments drove Huaqin Technology’s revenue growth, but lower gross margins meant the revenue forecast increases did not translate into a significant upward revision to Goldman Sachs’ net profit forecasts for 2026–2027.
Third-quarter revenue far exceeded expectations. Why did profit not beat expectations to the same extent?
Huaqin Technology reported third-quarter 2026 revenue of 72.3 billion yuan, up 61% year on year and 36% quarter on quarter, and 25% above Goldman Sachs’ forecast. Goldman Sachs believes the simultaneous revenue beat and lower gross margin reflect the rapid ramp-up of the AI server business.
Gross margin for the quarter was 6.9%, 1.6 percentage points below Goldman Sachs’ forecast; operating expenses were 4.5% of revenue, below the bank’s forecast of 5.7%. The lower expense ratio helped operating profit reach 1.74 billion yuan, 6% above Goldman Sachs’ forecast and up 51% quarter on quarter.
However, net profit attributable to shareholders was 1.32 billion yuan, 4% below Goldman Sachs’ forecast and down 32% quarter on quarter. Thus, the growth in revenue and operating profit was not matched by growth in attributable net profit for the quarter.
How will Supernode drive the next phase of growth?
Management said the company had delivered large-scale Supernode AI server racks early to leading Chinese cloud service providers. Deployment is expanding from one core cloud customer in the third quarter of 2026 and is expected to cover three major cloud customers by the first quarter of 2027.
Supernode presents opportunities in both AI servers and switches, and Huaqin is also working with several domestic AI chip suppliers. Management expects net profit growth in 2027 may be faster than in 2026, driven by increased AI spending by Chinese cloud service providers and Supernode growth.
Goldman Sachs expects capital expenditure by leading Chinese cloud platforms to grow year on year by 105%, 21% and 14%, respectively, in 2026–2028, providing a demand backdrop for Huaqin’s data-center business.
Why are profit forecasts largely unchanged despite higher revenue forecasts?
Goldman Sachs raised its 2026 revenue forecast by 9% to 238.7 billion yuan and its 2027 forecast by 2% to 302.2 billion yuan, while cutting its gross margin forecasts for the two years from 8.2% and 8.5%, respectively, to 7.2%, reflecting a higher share of AI server revenue.
The larger revenue base also prompted Goldman Sachs to lower its expense ratio forecasts. Taking the changes in gross margin and expense ratios together, the bank forecasts net profit attributable to shareholders of 5.91 billion yuan for 2026 and 8.27 billion yuan for 2027; according to its table, both revisions round to 0%.
What has changed in consumer electronics and the valuation assessment?
Management expects mobile terminal revenue to grow by a low double-digit percentage year on year in 2027 despite high memory costs, while computing revenue is expected to grow by a mid-double-digit percentage as the customer base expands. The company believes smartphone demand may remain weak, but higher ODM penetration and edge AI device projects are expected to support growth.
Goldman Sachs maintained its buy ratings on Huaqin’s A shares and H shares, while lowering its 12-month target prices from 121 yuan to 115 yuan and from 113.19 Hong Kong dollars to 108 Hong Kong dollars, respectively. The A-share target price uses a 2027 forecast price-to-earnings multiple of 21.1 times, down from 22.2 times previously.
