Hon Hai: Sovereign AI investment may reach USD 1 trillion in the next five years, becoming a new growth point in the computing power market

Hon Hai believes that sovereign AI investment projects worth over $1 trillion will emerge in the next five years, becoming a new important growth driver in the computing power market. According to news from the Chasing Wind Trading Desk, JP Morgan stated in a report on August 29 that analysts surveyed Hon Hai Precision during JP Morgan's Asia Technology Roadshow. During the survey, Hon Hai Precision indicated that there would be no significant transition issues with the GB200 and GB300, and stated that the GB300 would dominate shipments in the second half of 2025. Hon Hai stated that the company is actively seizing opportunities in the sovereign artificial intelligence field, expecting over $1 trillion in AI investment projects in this area within the next five years. Major projects include the Stargate in the United States, InvestAI in the European Union, and Humain AI in Saudi Arabia. Some projects have already begun to accelerate, and are expected to contribute revenue to the company starting in 2026. New GPU and ASIC Customers Drive Expansion of AI Server Market Share Earlier this month, Hon Hai maintained a strong AI revenue guidance during its second-quarter earnings call, with the company expecting a 170% quarter-over-quarter growth in AI revenue for the third quarter, and a projected 300% quarter-over-quarter growth in racks. Overall, Hon Hai's AI server revenue is expected to exceed NT$1 trillion by 2025 (JP Morgan's forecast is NT$1.8 trillion), capturing 40% of the market share. Management expects no significant transition issues with the GB200 and GB300, and stated that the GB300 will dominate shipments in the second half of 2025. Hon Hai believes that the company will continue to expand its market share. For the GB200 product, there are currently two cloud service provider (CSP) customers (JP Morgan expects them to be Microsoft and Oracle). By the GB300 product stage, the number of cloud service provider customers will increase to three (JP Morgan expects it to be Meta). Additionally, for the Vera Rubin product, one more customer will be added (JP Morgan expects it to be Google). Furthermore, Hon Hai also expects the number of ASIC (Application-Specific Integrated Circuit) customers to increase from the current one to three by 2025. Positive Growth Prospects for AI Regarding the shipment volume of NVIDIA racks, Hon Hai continues to maintain its previous view: the entire industry's NVL72 rack shipments may reach 30,000 to 50,000 units by 2025 (JP Morgan predicts that due to manufacturing challenges, actual shipments may lean towards the lower end of this range); in 2026, demand is expected to grow to 50,000 to 60,000 racks. With the increasing proportion of GB300 and Vera Rubin racks, the average selling price (ASP) may provide upward potential. As market share steadily increases and the total addressable market (TAM) grows robustly, JP Morgan believes that after achieving strong growth in Hon Hai's AI server revenue in 2025, it may further grow by 63% in 2026. GB300 Capacity Increase Leads to Short-term Gross Margin Dilution Despite the adverse impact of foreign exchange factors, Hon Hai achieved good gross margin performance in the second quarter. However, the company expects that with the increase in GB300 capacity, gross margins will decline due to the rising dollar costs of GPUs (graphics processing units). In addition to the rising proportion of smart consumer products and the adverse effects of foreign exchange, JP Morgan expects Hon Hai's gross margin to face pressure in the second half of 2025. However, Hon Hai stated that it will stabilize its operating profit margin (OPM) at around 3% by improving operational efficiency and increasing operational leverage. Management revealed that Hon Hai is expanding its AI server value chain from L11 (AI server complete delivery) to L11+ (modular data center solutions) in collaboration with TECO, leveraging modular data centers to rapidly scale data center capacity. At the same time, Hon Hai is further vertically integrating data center infrastructure components (such as cooling systems and power supplies, which continue to be sourced from suppliers like Delta Electronics). Hon Hai believes that servers account for about 40% of total capital expenditures by end customers, while power and cooling systems account for about 20%. This value chain extension initiative aims to increase the company's value capture ratio from 40% of capital expenditures to 60%, which will also help improve gross margins. Sovereign AI Will Support New Growth Points in the Computing Power Market Hon Hai stated that the company is actively seizing opportunities in the sovereign artificial intelligence sector, expecting over $1 trillion in AI investment projects in this field over the next five years. Key projects include the Stargate project in the United States ($500 billion), InvestAI in the European Union (€200 billion), and Humain AI in Saudi Arabia ($100 billion). Management believes that Hon Hai will capture a significant market share in this field, with some projects already accelerating, expected to contribute revenue to the company starting in 2026. Hon Hai is particularly optimistic about the Stargate project in the United States, with its Ohio factory likely to become a manufacturing base for modular data centers. JP Morgan estimates that once the Stargate project (with a power capacity of 10 gigawatts) is implemented, it could generate computing demand equivalent to 70,000 GB200 racks in the coming years. Currently, Hon Hai operates three factories in the United States, with a fourth factory in the development stage. Among them, the factories in Texas and California are relatively new, while the factory in Wisconsin has been operational for some time. Management expects significant growth in the U.S. business by 2026, with capacity expanding to several times the current level.