AVC (3017.TW): Liquid cooling rising penetration and AI servers ramp-up to drive growth ahead; Buy

We expect AVC's monthly revenues to continue sequential growth through Dec 2026, leading 4Q26 revenues to grow sharply YoY/QoQ, driven by (1) new AI server racks ramp-up lifting liquid cooling penetration, (2) its major ASIC AI server customer's new model ramp-up across air- and liquid-cooling components, (3) customer base expansion to a new ASIC AI server, and (4) rising adoption of ultra-thin VC in consumer electronics for lightweight and foldable phone designs. We expect net income to grow at a strong CAGR in 2026-28E on strong AI spending, rising liquid cooling penetration and AVC's leading position in total thermal solutions. We trim 2026E net income slightly but raise 2027-28E revenue, gross margin and net income, and lift our 12-month target price on a higher target P/E. Maintain Buy. Key downside risks: slower liquid cooling adoption, weaker AI server demand, fiercer competition and a slower general server recovery.