Pegatron (4938.TW): AI servers in expansion; New smartphone model with Broadband entering peak season to support growth ahead; Sell

3-month revenues preview: We expect sequential revenue growth in Sep-Dec, mainly driven by AI server racks ramp up with higher ASP and major smartphone brand customer's new model launches. Overall, we project Pegatron's 3Q/4Q26E revenues to grow +18%/+25% YoY, driven by: (1) new model launches from a major smartphone customer supporting September and 4Q26 revenue growth; (2) a continuing ramp-up in AI server shipments, across rack-level and baseboard-based, riding on the growing demand in Neocloud and enterprises, (3) broadband, IoT, and game console entering peak season. We are positive on Pegatron's expansion from consumer electronics to AI servers and automotive electronics, while the high memory costs could cap PC and smartphone market growth. Maintain Sell on stretched valuation. Pegatron's Aug revenue was up 34% YoY / 3% MoM to NT$88bn, or 12% lower than our estimate, reflecting that high memory costs continue to cap PC and smartphone growth despite a strong ramp-up in AI servers