Inspur (000977.SZ): AI server growth on rising AI demand in China; 2Q26 NI better than midpoint guidance; Sell

As the leading supplier of AI servers for leading China CSPs, the company continues to ride on growing China CSP capex and company's comprehensive product offerings (computing platform, liquid cooling solution, Agent infrastructure to improve efficiency). The company's 2Q26 NI was 19%/14% higher than our estimates and company's midpoint guidance. 2Q26 revenues were up 47% YoY to Rmb49bn, or 10% below our estimates, while GM improved to 10.3% in 2Q26 (vs. 6.6% in 1Q), reflecting strong AI spending in China and Inspur's improving margin for AI server business in 2Q26. We expect the company's revenue to grow at 22% CAGR in 2026-28E on the ongoing China CSP AI capex cycle, while valuations appear stretched (above 5-year avg. P/E). Maintain Sell.