Which businesses drove the third-quarter revenue beat?

  • Asia Vital Components has reported third-quarter 2026 revenue of 59.1 billion New Taiwan dollars, up 20% quarter on quarter and 52% year on year, exceeding both JPMorgan’s forecast and market consensus by 2%. Continued demand for GB300 servers, initial orders for VR200 switch trays, and vapor chambers for the iPhone 18 Pro series, which began shipping in September, together drove growth.
  • Despite the increased contribution from the smartphone business, JPMorgan expects third-quarter gross margin to rise to 33.9% from about 33% in the second quarter. With operating expenses controlled, it forecasts operating profit of 16.9 billion New Taiwan dollars and earnings per share of 29.1 New Taiwan dollars, respectively 6% and 4% above Bloomberg consensus.

How much have fourth-quarter forecasts been cut after the liquid-cooling delay?

  • JPMorgan has pushed back the ramp-up of major ASIC liquid-cooling projects, including AWS Trainium 3 and Google TPU v8, by about two months to around November 2026. As a result, the bank cut its fourth-quarter revenue forecast for Asia Vital Components by 2% to 67.2 billion New Taiwan dollars, although that still represents quarter-on-quarter growth of 14%.
  • The bank expects continued orders for VR200 and iPhone 18 Pro series vapor chambers, together with a small volume of ASIC liquid-cooling shipments, to support continued month-on-month revenue growth in October and November.
  • A lower share of liquid-cooling products also changed the margin forecast: fourth-quarter gross margin is expected to be 34.5%, below the previous forecast of 35.0% but still above the third-quarter forecast of 33.9%.

Why does the bank expect the delay to have a limited impact on near-term earnings?

  • JPMorgan believes Asia Vital Components can secure a higher allocation share in the initial stages of new ASIC projects thanks to its relatively good yields and speed to market. The bank estimates that the company’s share of the Trainium 3 liquid-cooling project could exceed 80% from November 2026 to December, so the delay will affect its near-term earnings less than those of second-tier suppliers.
  • The bank attributes recent share-price pressure to investor concerns about project delays and expects ASIC order momentum to accelerate again in the first half of 2027.

What conditions underpin the long-term earnings and valuation assessment?

  • JPMorgan believes that increasing cooling content in AI servers, together with higher selling prices and margins for liquid-cooling products, will support Asia Vital Components’ earnings growth; its competitive advantages could also bring further market-share gains. Corresponding constraints include slower-than-expected AI system specification upgrades, share losses, and pressure on selling prices and margins from competition.
  • The bank slightly lowered its forecasts for 2026 and 2027 because of the slower project ramp-up, while leaving its 2028 forecasts broadly unchanged. It maintained its Overweight rating and December 2027 price target of 5,200 New Taiwan dollars. The target is based on a 22 times forecast price-to-earnings multiple for 2028, in the middle-to-upper portion of the 15 to 25 times trading range since the rise of AI servers, and relies on support from the earnings upgrade cycle expected by the bank.