IT Hardware Sector Update: A Deep Dive into China’s AI Infrastructure
The IT hardware sector in China is witnessing an accelerated growth trajectory, with the AI infrastructure supply chain at its core. The spotlight is on Blackwell’s production ramp-up, which is set to surpass expectations, driving robust growth in the coming years. This comprehensive analysis delves into the performance and projections of key players within this dynamic landscape, offering insights into their market strategies and future outlook.
Foxconn Industrial Internet (FII): A Dominant Player in AI Servers
Foxconn Industrial Internet (FII) is strategically positioned within the global AI server market, boasting a 40% market share which is expected to surpass 50% in 2025. The company offers comprehensive full-stack solutions, including the design and assembly of GPU/CPU modules, NVSwitch, smartNic, DPU, and liquid cooling solutions.
FII’s guidance for 4Q24 indicates a slight year-on-year decline in communication and network equipment due to reduced smartphone component volumes. However, cloud equipment is anticipated to exhibit robust growth, with total revenue continuing to grow steadily. Their communication and network equipment business is poised for growth, driven by AI-related products such as high-speed 400G/800G switches. The adoption of vapour chamber (VC) technology in iPhones is expected to drive demand in 2025-26.
The recommendation for FII is a BUY, with a target share price of HK\$30.00, reflecting a 27.9% upside. The company’s strong involvement in the AI supply chain and its leading design capabilities position it well to capitalize on the AI investment boom.
ASMPT: Capitalizing on AI-Driven Growth
ASMPT is another notable player in the AI infrastructure landscape. With a BUY recommendation, the company is expected to see a 40.5% upside, targeting a share price of HK\$104.50. The market capitalization of ASMPT stands at LCY 30,876 million.
The company’s performance is underpinned by its robust earnings forecast, with a price-to-earnings (PE) ratio expected to decrease significantly from 58.2 in 2024F to 18.1 in 2025F. This indicates potential growth and improved profitability in the upcoming year.
BYD Electronic (BYDE): Riding the Wave of AI-Integrated Solutions
BYD Electronic (BYDE) is well-positioned within the AI supply chain, offering a 24.7% upside with a target price of HK\$40.90. The company’s market cap is LCY 73,905 million, with a focus on AI-ready devices and components.
The PE ratios for BYDE are favorable, projected at 15.2 for 2024F and dropping to 11.4 for 2025F, suggesting a strong growth potential. Their role as a components supplier, particularly in high-end precision components, aligns well with the anticipated demand surge in AI-related products.
Lenovo: Expanding Horizons in AI Solutions
Lenovo is a significant player in the AI server market, recommended as a BUY with a target price of HK\$12.00, offering a 30.4% upside. With a market cap of LCY 114,123 million, Lenovo continues to expand its footprint in AI-enabled solutions.
The company’s PE ratios are favorable, with projections of 11.1 for 2024F and 7.4 for 2025F. Lenovo’s strategic focus on liquid cooling solutions and advanced server designs positions it to benefit from the increasing compute density demands in AI infrastructure.
Conclusion
The Chinese IT hardware sector is on the cusp of a transformative phase, driven by advancements in AI infrastructure. Key players like FII, ASMPT, BYDE, and Lenovo are at the forefront, leveraging their strategic positions to harness growth opportunities. With robust growth prospects and strategic investments, these companies are set to redefine the AI landscape, offering lucrative opportunities for investors. -UOBKH
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