Goldman Sachs believes that this is mainly driven by four key factors: an increase in the market share of AI servers, the construction of modular AI data centers, upgrades to network equipment, and the new product cycle for smartphones. Goldman Sachs' net profit forecasts for 2025-27 are 4%-14% higher than Bloomberg's consensus estimates, reflecting the firm’s notably more optimistic outlook on the company. Using the recent price-to-earnings ratio, the bank derived a 12-month target price, raising the target P/E ratio from the previous 26.9x to 29.4x, and increasing the 12-month target price to RMB 77.2, while maintaining a Buy rating.
Benefiting from the booming AI investment frenzy, Industrial富联's stock price has repeatedly hit record highs, with cumulative gains of over 200% year-to-date. Goldman Sachs' latest research report may inject new 'excitement' into this 'trillion-yuan giant'!
On September 18, Goldman Sachs stated in its latest research report that it expects Industrial富联 to enter a strong profit growth cycle starting from the third quarter of 2025, mainly driven by multiple factors such as an increase in AI server market share, the construction of modular AI data centers, and a new product cycle for smartphones.
Analysts including Verena Jeng noted in the report that Industrial富联’s first-mover advantage in rack-level AI servers will drive it to capture a larger share of the AI infrastructure market. The partnership between its parent company, Hon Hai, and Teco Electric will accelerate the deployment of AI data centers for clients. Additionally, network equipment upgrades and the new smartphone product cycle are significant drivers of profit growth.
Based on this, Goldman Sachs raised its net profit forecasts for 2025-2027 by 3%/3%/4%, which is 4%-14% higher than Bloomberg's consensus estimates, demonstrating a notably more optimistic outlook for the company.
Meanwhile, Goldman Sachs continued to derive the 12-month target price using the recent P/E ratio, raising the target P/E ratio from the previous 26.9x to 29.4x. The 12-month target price was increased to RMB 77.2, representing a 13% increase, while maintaining a 'Buy' rating.
Four factors driving robust growth momentum
1. Increase in AI server market share
Goldman Sachs is optimistic about the multiple competitive advantages of Industrial富联’s AI server business.
The research report states that the company, leveraging its strong R&D capabilities and execution, was the first to launch next-generation rack-level AI servers, attracting new customers while experiencing minimal impact during the product transition period.
The company boasts a comprehensive portfolio of products spanning components and systems, with built-in liquid cooling technology set to enter mass production in the fourth quarter of 2025.
Moreover, Foxconn Industrial Internet (FII) operates global production bases with a customer base covering both U.S. and Chinese cloud service providers, addressing GPU-driven and ASIC-driven AI server markets.
Goldman Sachs forecasts that the robust ramp-up of rack-level AI servers starting in the third quarter of 2025 will significantly drive revenue growth, with operating expenses remaining under control as the operating expense ratio declines from 2.3% in the second quarter of 2025 to 1.9%/1.3%/1.2% in 2025-2027.
2. Modular Data Center Construction
Goldman Sachs notes that the partnership between FII’s parent company, Hon Hai Precision Industry (Foxconn), and Teco Electric & Machinery will accelerate the deployment of AI data centers for customers, supporting the growth in shipments of FII's AI servers.
3. Network Equipment Business Entering an Upgrade Cycle
With increasing demand for high-speed connectivity, Goldman Sachs indicates that FII's network equipment shipments will grow significantly. The company is upgrading its product mix to 400G/800G, which will substantially increase unit value content, further driving revenue growth.
4. New Cycle in the Smartphone Market
In addition to its AI business, the smartphone market is entering a peak season of strong new model releases in September, providing additional support for the company's performance. Goldman Sachs expects the new smartphone product cycle to create synergies with the AI server business, jointly propelling the company into a phase of robust growth.
Earnings forecasts have been significantly raised, far exceeding market expectations.
Based on the four major drivers mentioned above, Goldman Sachs has raised its earnings forecasts for Foxconn Industrial Internet (FII) from 2025 to 2027, which are substantially higher than market expectations. Specifically:
Net profits for 2025-27 have been revised upward by 3%/3%/4%, reaching RMB 33.632 billion, RMB 52.161 billion, and RMB 66.240 billion, respectively;
The operating profit margin (OPM) forecast is expected to increase from 4.2% in 2025 to 4.3% in 2027;
Operating expense ratios are projected to decline significantly, falling from 1.9% in 2025 to 1.2% in 2027.
According to the research report, compared with Bloomberg consensus estimates, Goldman Sachs’ net profit forecasts for 2025 and 2026 are RMB 33.632 billion and RMB 52.161 billion, representing a 4% and 14% premium, respectively; operating profit forecasts for 2025 and 2026 are 10% and 19% higher, respectively.
Additionally, Goldman Sachs forecasts revenue of RMB 945.957 billion for 2025, 8% higher than Bloomberg’s consensus estimate, and RMB 1,432.428 billion for 2026, surpassing the consensus estimate by 17%.
Valuation Methodology: Detailed Breakdown of Target Price Increase
Goldman Sachs continues to use the near-term P/E ratio to derive the 12-month target price. The target P/E multiple is determined based on the regression relationship between peer companies' P/E ratios and forward-year fundamentals (net profit growth rate and operating profit margin), currently set at 0.94x (previously 0.87x).
Based on this, Goldman Sachs has raised its target P/E ratio from the previous 26.9x to 29.4x, reflecting the market's revaluation of the AI server supply chain and robust forward-year fundamentals driven by increased AI server volumes. The current target P/E ratio also closely aligns with the historical peak P/E ratio of 28x.
Ultimately, Goldman Sachs raised its 12-month target price by 13% to RMB 77.2, representing a 20% upside from the current share price of RMB 64.36, and maintained a Buy rating.
