Nvidia-Partner Hon Hai’s Shares Climb After AI Spurs Sales Beat

(Bloomberg) — Hon Hai Precision Industry Co. reported faster-than-expected revenue growth of 15% after Nvidia Corp’s server assembly partner benefited from continued demand for artificial intelligence infrastructure.

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Hon Hai, also Apple Inc.’s largest iPhone maker, reported revenue of NT$2.13 trillion (US$64.6 billion) over the past three months. December revenue rose 42%, helping the company known as Foxconn beat analysts’ expectations. It also expects “significant” sales growth during the first quarter, helping its shares rise as much as 3.6% in Taipei, its biggest intraday gain in about two weeks.

The company and other Taiwanese AI hardware suppliers have enjoyed a boost from massive spending on data center servers by major U.S. technology companies such as Alphabet Inc. and Microsoft Corp. But the lack of a compelling use case for AI yet has made investors nervous about when the expansion might slow.

Goldman Sachs analysts revised their 2024 earnings estimates higher by 1% based on higher-than-expected December revenue. They also raised revenue estimates for this year and the next two years, citing higher AI server revenue.

“Sequential revenue growth in the cloud supports our positive view on increasing shipments of next-generation rack-level AI servers, and demand for general servers and networking equipment is rebounding,” Goldman Sachs analysts wrote.

Hon Hai expects revenue from its cloud business, which includes AI servers, to equal sales of its iPhone manufacturing division in 2025.

However, Citi analyst Cary Liu warned in a note that the stock could face a near-term pullback based on the company’s first-quarter forecasts that appeared to fall short of market estimates.

The AI ​​market is important to Hon Hai’s efforts to diversify its business away from Apple, whose iPhones are seeing weak growth. Apple has historically accounted for more than half of the Taiwanese company’s sales.

Hon Hai also aims to break into the electric car market, although this venture has not yet had any tangible impact on its profits. The company approached Renault SA about partnering with Nissan Motor Co, of which Renault owns 36%. Bloomberg News reported that this effort is currently on hold as Nissan and Honda Motor Co. negotiate a merger.

(Updates with stock movements and analyst comments)

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