Citi: Hon Hai moves from server assembly to AI data-center integration as Citi sees higher value per project

How is Hon Hai’s role in the AI supply chain changing?

Hon Hai’s collaboration with Nvidia has expanded from GPU server assembly to Vera Rubin full-rack systems, encompassing networking, power supply, cooling and AI factory deployment. Management said more than 10 dedicated manufacturing facilities already support Vera Rubin production.
Hon Hai demonstrated vertical integration spanning precision parts, mechanical components, PCBs and power-supply modules, compute and switch trays, through to rack integration and data-center deployment. Citi believes involvement in more stages could increase the value Hon Hai captures from each AI project and deepen customer relationships.

The NVIDIA DSX POD offered by Hon Hai moves rack integration, cabling, liquid-cooling connections and functional testing to the factory before shipment, with the aim of shortening on-site deployment from about six months to as little as 14 days. Nvidia expects its partner ecosystem to begin deliveries in early 2027.
Each POD contains 7 Vera Rubin NVL72 racks and 3 Spectrum-6 SPX racks, with more than 10 million components. Citi believes integrating more of the system at the factory could extend Hon Hai’s revenue opportunity from rack assembly to overall infrastructure.
Hon Hai is also working with TECO to develop a 40-foot containerized modular data center that integrates IT, power distribution and cooling, with more than 80% of module assembly completed at the factory.

Hon Hai redesigned the compute tray, removing conventional cables, liquid-cooling hoses and fans to simplify assembly, improve reliability and increase automation. The company also demonstrated the use of digital twins, machine vision and physical AI to automate precision processes such as busbar installation.
Citi believes design capabilities for manufacturing and automation can help accelerate production ramp-up and improve yields. As full-rack systems become more complex, manufacturing and system-validation capabilities will also affect Hon Hai’s ability to secure next-generation products.
In networking, Hon Hai demonstrated capabilities ranging from co-packaged optics and high-speed connectivity to switch-tray integration. Citi expects the next-generation co-packaged optics solution for NVL576 to be announced alongside VRU in 2027, and expects Hon Hai to remain the exclusive supplier.

Citi has a buy rating and a target price of 400 New Taiwan dollars for Hon Hai, calculated at 18 times expected average earnings per share for 2026–2027, near the higher end of its historical trading range. The bank believes improved sales growth and margin prospects, along with new businesses such as AI servers and electric vehicles, can support this multiple.
Downside risks listed by Citi include weaker-than-expected iPhone demand, intensifying competition from peers and slower-than-expected progress in new businesses.