Foxconn reported a 47% year-over-year surge in third-quarter revenue, reaching NT$3.03 trillion, as demand for Nvidia-linked AI servers continues to accelerate. The figure beat the LSEG SmartEstimate of NT$2.83 trillion, underscoring the company's central role in the AI hardware supply chain.
Despite the strong top-line performance, Foxconn's stock closed just 1.2% higher at NT$254 on Monday. Year-to-date, the shares have delivered a total return of roughly 13.7%, a stark contrast to the 71.6% gain in Taiwan's benchmark index. This gap highlights persistent investor skepticism about whether explosive revenue growth will translate into sustainable profitability.
Revenue growth outpaces profitability
Foxconn has become Nvidia's largest server manufacturing partner, and AI infrastructure is increasingly displacing the iPhone as its primary growth engine. In the second quarter, revenue rose 41% to NT$2.53 trillion, while net profit increased 35% to NT$60 billion. Cloud and networking products now account for 51% of sales, overtaking smart consumer electronics.
However, gross margin slipped to 6.12% from 6.33% a year earlier. This is the key tension for the stock: AI servers carry enormous selling prices and push revenue higher quickly, but contract manufacturing remains a relatively low-margin business. The company's November 12 earnings report will therefore be more critical than Monday's sales number, as investors will be watching whether operating leverage catches up with the top-line surge.
Competition intensifies in AI racks
Foxconn is scaling production aggressively as Nvidia transitions to its Vera Rubin generation. The company said in August that AI rack shipments should more than double in 2026, with Vera Rubin racks entering mass production in the third quarter. The opportunity is large, but Foxconn is not alone. Morgan Stanley analysts expect its share of the high-end AI rack market to fall to about 39% this year from 51% in 2025, as standardized designs make it easier for rivals to compete.
This competitive pressure helps explain why investors have been more willing to pay premium valuations for chip designers and foundries that capture higher margins than for the companies assembling their systems. Foxconn believes its scale, automation, and vertically integrated manufacturing should help it defend its position as AI racks become more complex.
Valuation gap may present opportunity
The valuation gap is now large enough to attract bullish analysts. Investing.com lists 19 Buy ratings on Hon Hai, with an average 12-month target of NT$347.45. Macquarie's NT$435 target is among the most bullish. These targets assume Foxconn can convert rapidly expanding server volumes into higher operating profit.
There is some evidence of that already, as second-quarter operating profit jumped 68%, much faster than revenue, and the operating margin improved to 3.75%. Still, investors are demanding proof that this can persist as competition intensifies and Foxconn spends heavily on new capacity in Taiwan, the US, Mexico, and Vietnam.
This article is for informational purposes only and does not constitute financial advice.
