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Investing.com -- Morgan Stanley raised its price target on Apple supplier Foxconn (TW:2354) to NT$250 from NT$220, citing a stronger-than-expected ramp-up in its AI server business and better margin performance.
The bank reiterated its Overweight rating.
Foxconn reported second-quarter 2025 gross and operating margins of 6.3% and 3.2%, respectively, beating Morgan Stanley’s estimates thanks to scale benefits and cost control.
Net income of NT$44.4 billion was 38% above forecast, helped by non-operating income.
The world’s largest contract electronics maker expects AI server rack shipments to surge 300% quarter-on-quarter (QoQ) in the third quarter, following a 60% year-on-year revenue rise in the second quarter.
AI server revenue is projected to grow more than 170% year-on-year in the third quarter, with further gains anticipated in the fourth.
“Management is confident in 300% QoQ AI server rack shipment growth in 3Q25 and ongoing supply share gain with major cloud service provider (CSP) customers and sovereign AI projects in 2026,” analyst Sharon Shih said in a note.
She forecasts that cloud and networking will become Hon Hai’s largest revenue contributor in 2026, exceeding 50% of total revenue.
Capacity expansions in the United States, including in Texas, Wisconsin, and Ohio, are aimed at meeting this demand. Over the past year, Hon Hai has invested over $1.5 billion in AI server-related capacity in the U.S.
Following the strong Q2 print, Morgan Stanley lifted its earnings estimates for 2025 and 2026 by 14%, and by 9% for 2027, reflecting the stronger AI server ramp.
Shih sees the stock trading higher in the near term on the improved business outlook, noting that “enlarged scale will drive operating leverage, which appears to be boosting profitability earlier than we had expected.”
Morgan Stanley’s revised target is based on a residual income valuation model, assuming a cost of equity of 8.5%, medium-term growth of 13%, and a terminal growth rate of 3%.
The firm values the stock at 16 times estimated 2026 earnings, with a bull-case scenario of NT$350.