Morgan Stanley: MetaX’s third-quarter revenue beats expectations, but costs and customer mix weigh on earnings outlook

Third-quarter revenue beat expectations, but how did profit fare?

In the third quarter of 2026, MetaX reported revenue of 1.5 billion yuan, up 97% quarter on quarter and 367% year on year, beating Morgan Stanley’s forecast and market consensus by 28% and 39%, respectively. The company attributed the growth to a significant increase in GPU shipments; the bank believes a price increase for the C600 also supported the average selling price.
Gross margin for the period was 53.0%, below the bank’s forecast of 54.1%. Even as prices and shipment volumes rose, gross margin did not expand noticeably, which the bank believes reflected cost pressure from memory and other components. Quarterly operating profit was 359 million yuan, and net profit was 27 million yuan.
Morgan Stanley consequently raised its 2026 revenue forecast by 8% and its earnings-per-share forecast from 0.07 yuan to 0.86 yuan.

Morgan Stanley believes government-related projects and distributors remain the main sources of demand, with a limited contribution from major cloud service providers. As a result, rapid revenue growth is a weak indicator of demand from large cloud customers.
The bank’s industry research indicates that JD.com ordered approximately 20 thousand C600A chips, but it believes this is insufficient evidence of widespread adoption of MetaX products by major cloud service providers.
Customer quality also affects assessments of collections: in the first nine months of 2026, the company recorded 38 million yuan in bad-debt losses on accounts receivable, while receivables rose from 730 million yuan at the end of 2025 to 1.42 billion yuan. Morgan Stanley’s model forecasts operating cash flow of negative 1.21 billion yuan and negative 740 million yuan in 2026 and 2027, respectively.

Morgan Stanley’s supply-chain research indicates that the price of 36GB HBM3e rose from an ex-factory price of approximately 500 to 600 dollars to more than 4000 dollars on the gray market. Although the company raised the selling price of the C600, the bank believes its limited scale among major cloud service providers makes it difficult to fully absorb higher memory costs.
The bank lowered its gross-margin forecasts for 2027 and 2028 from 51.4% and 50.8% to 50.3% and 48.2%, respectively. Continued investment in the C700 and software also limits operating expense leverage, particularly affecting the 2028 operating margin.
While leaving its 2027 revenue forecast broadly unchanged and cutting its 2028 revenue forecast by 3%, the bank lowered its earnings-per-share forecasts for the two years by 21% and 23%, respectively.

Morgan Stanley’s research indicates that MetaX has secured overseas capacity for 2027, easing near-term supply risks. However, management expects the C700 to be introduced to customers in the third quarter of 2027 and shipped in the fourth quarter. The bank believes the new product will make a limited contribution that year, with the company still relying on the C600 for most of the period, and that it may miss the window as major cloud service providers accelerate deployment of domestically produced AI chips.
The bank downgraded the stock from Equal-weight to Underweight, cut its price target from 700 yuan to 380 yuan, and lowered the medium-term growth assumption in its valuation model from 18% to 16%. By its calculations, the share price used in the report implies forecast price-to-sales ratios of approximately 41 times and 29 times for 2026 and 2027, respectively; it considers the valuation high given the outlook for customer penetration, the product transition and margins.