Bucking near-term industry trends on AI server ramp and gross margins; strong 2027 outlook

Hon Hai delivered strong gross margins and better-than-expected operating margins in 3Q26 despite a rising AI server mix, helped by higher consignment mix, deeper vertical integration and operating leverage. Guidance for 4Q26 points to high double-digit QoQ growth in AI rack shipments, better than peer ODMs, driven by continued shipments for a new customer believed to be SPCX, share gains at key AI CSPs such as GOOG, and momentum in ASIC servers, which should rise to about 20% of AI server revenue from 15% in 3Q26. For 2027, J.P. Morgan expects 30%+ growth in AI server rack shipments, supported by NVIDIA demand growth and share gains in the VR200 generation at SPCX and GOOG, although the VR200 ramp looks slower and may only become the majority of AI server shipments by 2Q27. Management expects gross margins to trend lower in 2027 on higher VR200 ASPs of roughly 2x GB300s, but believes operating margins above 3% (3.5-3.6% at corporate level) are doable. The broker raises FY26/27/28 esti