UOB Kay Hian
Date of Report: Monday, 18 August 2025
Foxconn Industrial Internet Surges Ahead: Robust AI Server Growth, Elevated Guidance and Premium Valuation

Overview: Foxconn Industrial Internet Powers Up with AI and Networking Expansion

Foxconn Industrial Internet (FII), a leading player in communication network equipment development and manufacturing, is making headlines with its solid third-quarter guidance for 2025. The company is riding high on the booming demand for AI servers, advanced networking switches, and precision components, positioning itself as a dominant force in the global Original Design Manufacturer (ODM) landscape.
Key highlights include a substantial upgrade in target price to RMB49.50, reflecting a 10.3% upside. FII’s remarkable engineering capabilities, robust production ramp-up of next-gen AI servers, and strategic transition to cutting-edge rack technologies are setting new benchmarks in the industry.

Strategic Growth Drivers: AI Servers, Networking Switches, and Precision Components

Foxconn Industrial Internet’s growth trajectory is primarily fueled by:

• AI Server Momentum: Revenue from AI servers is projected to grow 1.7x year-over-year and 1.0x quarter-over-quarter in Q3 2025. The GB200 rack is a major contributor, with production yields exceeding 1,000 deliveries per month.
• Networking Equipment Expansion: High-speed networking switches, especially 800G switches, are expected to ramp rapidly, driving a 15x year-over-year revenue increase from a low base. FII is also advancing development on 1.6T switches and co-packaged optics.
• Cloud Equipment Transition: AI servers’ share in cloud equipment revenue is forecasted to exceed 65% in Q3 2025, with GB200 racks contributing 50% of this segment. Production volume is expected to triple quarter-over-quarter, surpassing 4,500 racks.
• ASIC Servers: Shipments are set to commence in Q4 2025 (notably with Amazon), with meaningful revenue impact expected in 2026.
• Stable Smartphone Demand: Continues to underpin the precision components segment.

Market Leadership: Premium Engineering and Fast-Moving Product Cycles

FII’s management emphasizes that demand and orders remain strong for AI business across the industry. The real differentiator is the ability to scale production yield rapidly. With competitors offering conservative guidance for GB200 rack shipments in Q3 2025, FII stands out as a front-runner in operational performance.
AI server ODM is a dynamic market with roughly one-year product cycles. As the market transitions from GB200 to GB300 racks by Q2 2026, FII’s agility and technical prowess ensure it remains ahead of the curve, solidifying its position as a global leader in AI server ODM.

Financial Performance: Upgraded Guidance and Strong Fundamentals

FII’s financials reflect its growth momentum and operational leverage. Following the robust Q3 2025 guidance and anticipated ASIC server contribution, earnings estimates for 2025-2027 have been raised by 8.3%, 20.8%, and 25.1% respectively. This is supported by low opex ratios and enhanced operating scale.

Segment Analysis: Communication, Cloud, and Robotics

Profitability and Key Metrics

FII maintains strong profitability, with gross margins stabilizing above 5.9% and net margins around 3.5%. The return on equity is projected to climb from 15.9% in 2024 to 24.5% by 2027. The company’s net debt to equity ratio remains healthy, with minimal leverage.

Cash Flow and Balance Sheet Strength

FII’s cash flow reflects strong operational performance, with positive operating cash flows expected from 2026 onwards. The company’s balance sheet remains robust, with shareholder equity projected to rise to RMB228.7 billion by 2027.

Valuation, Recommendation, and Outlook

UOB Kay Hian maintains its BUY rating on Foxconn Industrial Internet, raising the target price to RMB49.50. The company’s valuation is pegged at a P/E multiple of 21.7x for 2026, two standard deviations above its historical mean, reflecting expected premium earnings growth as AI infrastructure investment remains robust.

Conclusion: Foxconn Industrial Internet Remains a Top Pick for AI Infrastructure Exposure

With strong Q3 guidance, rapid production scaling, and best-in-class engineering, Foxconn Industrial Internet stands out in the fast-evolving AI and networking equipment market. Its ability to stay ahead of technological transitions, particularly the move to GB300 racks by 2026, ensures continued leadership in the global AI server ODM market. Investors seeking exposure to the next wave of AI infrastructure growth and high-tech manufacturing should keep a keen eye on FII’s performance and strategic developments.

Disclosures and Analyst Certification

This report was prepared independently by UOB Kay Hian, with all views reflecting the analysts’ personal perspectives and not influenced by any proprietary positions or compensation linked to the covered securities. The report is distributed in accordance with regulatory requirements in relevant jurisdictions.
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