Hon Hai's Q1 net profit exceeds expectations: AI server dividends continue to be released, standing at the core circle of the NVIDIA industry chain.

The world's largest electronic contract manufacturer, Hon Hai Precision Industry (parent company of Foxconn), announced its first quarter financial report for 2026 on May 14th. The data showed that for the first quarter ending in March, the company achieved a net profit growth of 19% year-on-year to 49.92 billion New Taiwan dollars (approximately 1.6 billion US dollars), exceeding the analyst's average expectation of 48.4 billion New Taiwan dollars. Quarterly revenue reached 2.12 trillion New Taiwan dollars, slightly lower than the market consensus forecast of 2.15 trillion New Taiwan dollars. The previously announced first quarter sales increased by about 30%, which was in line with expectations. This financial report of "profit exceeding expectations, revenue slightly below expectations" reflects the complex picture of Hon Hai in the process of AI transformation. The slight revenue shortfall on the revenue side was mainly due to the uncertainty of consumer electronics demand, while the better-than-expected performance on the profit side reflected the significant improvement in cost control and operational efficiency of the company. Looking at monthly data, sales in April reached 832.1 billion New Taiwan dollars (approximately 26.3 billion US dollars), setting a new historical record, with a 29.7% year-on-year growth. This surge in growth reflects the accelerated delivery trend of AI server orders at the end of the quarter and sets the stage for continued growth in the second quarter. Analysis of Growth Engines: The Drive Behind the AI Server Boom Hon Hai's growth this quarter shows clear structural characteristics, with AI servers and consumer electronics forming the core support for performance growth. The AI server demand remains strong. As the largest AI server manufacturer for NVIDIA, Hon Hai has benefited greatly from the explosive growth in global demand for artificial intelligence computing power. The financial report shows that revenue growth is mainly driven by the strong demand for artificial intelligence servers. Although the shift to consignment business model has somewhat suppressed the revenue growth on the balance sheet, the strong orders for AI servers have still driven the strong growth of the cloud services and network products department. Hon Hai has firmly established itself as a strategic player in the global AI hardware sector through the assembly of servers with NVIDIA accelerators. Consumer electronics business sees a revival window. At the same time, the smart consumer electronics products sector shows significant signs of recovery. The release of Apple's entry-level iPhone 17e and the sustained demand for the iPhone 17 series have injected growth momentum into Hon Hai's consumer electronics sector. This revival signal is particularly critical for Hon Hai - as the assembly business for Apple iPhones and MacBooks still accounts for a considerable proportion of Hon Hai's overall revenue, its prosperity directly affects the company's economies of scale and capacity utilization. It is worth noting that Hon Hai is at a crucial stage of transition from traditional "labor-type" contract manufacturing to "brain-type" research and development-driven. The company's research department recently partnered with French developer Quobly to release an open-source quantum computing toolkit, and also expanded its high-end server production and AI infrastructure development base in Wisconsin, pointing towards high-profit AI servers and cutting-edge computing areas. However, the increasing proportion of AI server revenue may put structural pressure on gross profit margins - server profit margins are usually lower than those of consumer electronics contract manufacturing, posing a continuing structural challenge that needs to be closely monitored. NVIDIA Supply Chain Linkage: AI Capital Expenditure Surges in Super Cycle Outbreak Hon Hai's performance reflects a microcosm of the current AI computing power investment super cycle. Its core customer NVIDIA is currently in a historic growth trajectory. As of mid-May, NVIDIA's stock price has been rising for several consecutive days, with a market capitalization exceeding 5.5 trillion US dollars, representing an 18.38% increase since the beginning of the year, making it one of the strongest performers among the "Big Seven" tech stocks in the US. In the past four trading days alone, NVIDIA's stock price has risen by approximately 14%, with a market value increase of about 591 billion US dollars, surpassing the overall market value of tech giants such as Oracle, highlighting the market's high confidence in the sustainability of AI chip demand. NVIDIA is set to announce its first quarter financial report after market close on May 20th, and Wall Street's expectations for its performance are extremely optimistic. A forecast report released by Citibank predicts that its quarterly revenue will reach around 73 billion US dollars, exceeding the market's general expectation of 71.8 billion US dollars. Citibank analysts point out that the supply-demand imbalance of Blackwell and Rubin AI chips remains "highly favorable", with super-sized enterprises doubling their capital expenditure on AI infrastructure in 2026, far exceeding Wall Street's previous expectations. The Wall Street consensus forecast for revenue is 78.8 billion US dollars, with earnings per share of 1.77 US dollars. Even more crucially, the top four US tech giants - Google, Amazon, Microsoft, and Meta - have planned to collectively invest up to 725 billion US dollars in capital expenditure in 2026, a record 77% increase from the previous year's 410 billion US dollars, mainly for AI data center equipment and infrastructure construction. This unprecedented wave of capital expenditure directly and continuously benefits Hon Hai - as NVIDIA's largest server assembly partner, Hon Hai is at the core of the AI computing power supply chain, with its order visibility and revenue growth prospects highly linked to the capital expenditure pace of downstream customers. These multi-billion dollar debt financing initiatives are ultimately directed towards Hon Hai and other AI server system contract manufacturers. Judging from Hon Hai's position in the NVIDIA supply chain, its order visibility has extended to future two-generation chip architectures. The NVIDIA GB300 has now entered small-scale production, becoming the main product for AI server shipments in the first half of 2026; the Vera Rubin platform is expected to take over mass production in the second half of the year, possibly extending into 2027. Earlier at NVIDIA's GTC conference in March, Hon Hai showcased an AI server cabinet solution featuring the NVIDIA Vera Rubin NVL72 - compared to the NVL72 Blackwell, its inference efficiency has increased by 5 times, training efficiency by 3.5 times, and inference costs greatly reduced to one-tenth. More significantly, the continuous increase in market share is underway. Estimates show that Hon Hai shipped around 12,000 units of the NVIDIA GB series cabinets in 2025, with a market share of about 43%. With the support of core clients such as Google, Amazon AWS, and Microsoft, Hon Hai's market share is expected to rise to 55% to 60% in 2026. This means that in the core race of AI servers, Hon Hai is evolving from an "important participant" to an "absolute leader." The revenue structure in April showed that the "Components and Other" and "Cloud Networks" categories performed most prominently. Hon Hai attributed this to the "strong demand for AI cloud products", with significant month-on-month and year-on-year growth recorded. Hon Hai's current cloud network product revenue ratio has increased to about 50%, and AI servers have elevated from being marginal businesses in the past to becoming the group's most core growth drive. This proportion was as low as 22% in early 2025, almost doubling in just over a year. Risks and Challenges: Geopolitical, Supply Chain Pressure and Profitability Maneuvers Despite positive growth prospects, Hon Hai faces multiple risks that cannot be ignored. Geopolitical uncertainties are escalating, and Hon Hai has previously warned that the ongoing escalation of the Middle East crisis has increased supply chain risks. The tension between the US and Iran has led to disruptions in shipping through the Strait of Hormuz, creating new uncertainties in global energy and logistics costs. Hon Hai also admitted in the financial report that it "still needs to pay attention to the impact of global political and economic turmoil." According to media reports, Hon Hai recently confirmed that its North American facilities were hit by ransomware attacks, with hackers claiming to have stolen 8TB of data involving major clients such as Apple, Google, and NVIDIA. Although the affected factories have resumed normal production, the threat to network security is becoming increasingly apparent for global contract manufacturing companies. Tariffs and supply chain restructuring pressure. The ongoing escalation of US-China trade friction is driving a profound restructuring of the global electronics supply chain. The US's increasing tariffs on China are leading to a reshuffle of the global supply chain. Some countries are using high tariffs to attract manufacturing transfers, forcing contract manufacturing giants like Foxconn to accelerate their production capacity layout in Vietnam, India, and other regions. However, reality is far more complex than imagined - Foxconn's subsidiary in northern Vietnam generated about 8.6 billion US dollars in exports last year, but corresponded with a high import value of about 7.9 billion US dollars for components, showing that core components like displays and aluminum frames are still primarily sourced from mainland China, South Korea, and Taiwan rather than domestically. In India, local supply chains are also struggling to produce qualified precision components, and contract factories still need to import screens, modules, batteries, and cameras in large quantities from Guangdong and Jiangsu in China. The physical relocation of the supply chain not only involves massive capital investment but also faces challenges such as capacity ramp-up, yield improvement, and infrastructure support, making it difficult to significantly reduce cost structures in the short term. The rising prices of memory chips erosion profit margins. The continuous increase in memory chip prices has put pressure on the profitability of many electronics companies, including industry giants such as Panasonic and Canon. While Hon Hai has partially offset the impact of rising costs through the strong growth of AI servers, the pressure on profit margins remains a structural challenge that needs to be addressed in the medium to long term. The increasing share of AI server revenue may continue to exert sustained pressure on overall gross profit margins. Despite the strong demand for AI, the market is beginning to worry about the overvaluation of AI-related tech stocks. This performance reflects investors' cautious attitude towards the valuation of traditional electronic contract manufacturing companies amid rising macroeconomic uncertainty and geopolitical risks, even though the prospects for AI server growth are good, the volatility of the consumer electronics cycle and profitability pressure remain lingering concerns. Outlook: Opportunities and Balancing Acts in the AI Super Cycle Looking ahead to the next quarter, Hon Hai expects business to achieve quarter-on-quarter and year-on-year growth, with AI server rack products maintaining a continuous growth trend. Hon Hai stated that the strong demand for AI servers will continue throughout the year, and the shipment volume of AI cabinets in the second quarter is expected to show high double-digit quarterly growth. However, in the context of the macro environment of global political and economic turmoil, this manufacturing giant spanning the AI hardware and consumer electronics sectors still needs to seek precise balance among multiple contradictions. On the one hand, the explosive growth in demand for AI servers provides Hon Hai with strong growth momentum - with tech giants' capital expenditure plan of 725 billion US dollars, the order visibility for AI hardware will remain high for the next several quarters. On the other hand, the cyclical fluctuations in the consumer electronics business, the ongoing escalation of geopolitical risks, and the cost pressure from rising prices of core components such as memory chips are all testing the operational resilience of this veteran contract manufacturing company. Amid the comprehensive rollout of the AI super cycle, Hon Hai Precision Industry, as a crucial manufacturing hub connecting chip design to end applications, is redefining its strategic position. Whether it can translate the high growth momentum of AI servers into sustained profit improvement will be the key proposition determining whether its long-term valuation center can be uplifted.