Strategy
Strategy: Taiwan Tech Field Trip 2026: AI Supply Is The Constraint; Memory Is The Tax On Devices
Analyst
Analyst
Sirithat Prasertwuthi
Investment Highlights
- We visited Quanta, MediaTek, TSMC, Hon Hai and ASUS in Taiwan. AI demand is still strong. The real problem is supply, not demand.
- Companies can already see AI orders two to three years ahead. TSMC expects AI revenue to grow 50-60% a year. Hon Hai is raising 2026 capex by 40%. Quanta is doubling its AI server shipments.
- Memory chips are the main bottleneck, and the shortage may get worse in 2027. Handset unit sales should fall 16.7% in 2026, but market value will still rise 6.3% because average prices are up 27.6%. This favours premium devices.
- Thailand plays a real role in AI supply chains. Top picks: DELTA, COM7, HANA, CCET and WHA.
Key Takeaways
- TSMC: This is a long-term trend, not just a cycle. TSMC still expects group revenue to grow near mid-20% a year from 2024 to 2029, and AI revenue to grow 50-60% a year. It sees 2026 growth just above 30%, and 2027 is shaping up well too. Its leading-edge factories are running above 100% utilisation. Nine new fabs are under construction, and management still expects supply to fall short. Capex over the next three years will be much higher than in the last three years. The new N2 node will hurt gross margin further in 2H26; this is normal for a new node ramp. Backend and advanced packaging will grow from just above 10% of 2025 revenue to the low teens in 2026. Importantly, TSMC is being conservative with customer demand, stating, “if we did [meet all demand], we would be building 20 fabs, not nine.”
- Hon Hai: AI is now half of the business. The profitability is in the 20% that isn't silicon chips. Cloud and networking revenue rose from 30% in 2024, to 40% in 2025, to about 50% in 1H26, mostly servers, which are 85-90% of that. Capex grew 27% in 2025 and will rise another 40% in 2026, almost all for AI. Each server rack costs about US$5m-6m. Chips and memory make up over 80% of that cost. The rest, about 20%, is cables, connectors, busbar, power and liquid cooling, and this is where the profit is. Hon Hai makes roughly half of these parts itself, earning over 20% gross margin, versus low single-digit margin on parts it just buys and resells.
- Quanta: Thailand is the starting point of the AI server supply chain. This was the most Thailand-relevant meeting of the trip. Land and power in Taiwan are in short supply, so Quanta moved most of its server assembly lines to Thailand. The Thai plant is now 3-5 times the size it was in 2019. Thailand and the US together take about 85% of the group's investment. Boards are built in Thailand (the L6 stage) and shipped to the US for final assembly (L10). Thailand holds only 10-20% of the finished product's value, but a much bigger share of the early manufacturing. Quanta chose this site as it already holds a power licence. There is no AI server production in China.
- Quanta: The numbers, and a dip in notebooks. Servers make up 80-85% of Quanta's revenue. AI shipments are doubling this year. 2Q26 operating margin hit a record 4.0%, and 1H26 operating profit grew 27% yoy. The price of an AI rack has risen from US$2m-3m to US$7m-8m for the GB200 model. Since key parts make up 90-97% of the cost, margin rates fall even as profit dollars rise. On the client side, Quanta guided its own notebook shipments down over 20% in 3Q26, normally its busiest quarter, after two quarters of front-loaded orders. Its sharpest comment: The memory supply gap is only about 3%, but prices have risen far more than that. This means memory makers are rationing supply, not that supply has run out, and HBM chips are absorbing the wafers.
Investment Highlights
- We visited Quanta, MediaTek, TSMC, Hon Hai and ASUS in Taiwan. AI demand is still strong. The real problem is supply, not demand.
- Companies can already see AI orders two to three years ahead. TSMC expects AI revenue to grow 50-60% a year. Hon Hai is raising 2026 capex by 40%. Quanta is doubling its AI server shipments.
- Memory chips are the main bottleneck, and the shortage may get worse in 2027. Handset unit sales should fall 16.7% in 2026, but market value will still rise 6.3% because average prices are up 27.6%. This favours premium devices.
- Thailand plays a real role in AI supply chains. Top picks: DELTA, COM7, HANA, CCET and WHA.
Key Takeaways
- TSMC: This is a long-term trend, not just a cycle. TSMC still expects group revenue to grow near mid-20% a year from 2024 to 2029, and AI revenue to grow 50-60% a year. It sees 2026 growth just above 30%, and 2027 is shaping up well too. Its leading-edge factories are running above 100% utilisation. Nine new fabs are under construction, and management still expects supply to fall short. Capex over the next three years will be much higher than in the last three years. The new N2 node will hurt gross margin further in 2H26; this is normal for a new node ramp. Backend and advanced packaging will grow from just above 10% of 2025 revenue to the low teens in 2026. Importantly, TSMC is being conservative with customer demand, stating, “if we did [meet all demand], we would be building 20 fabs, not nine.”
- Hon Hai: AI is now half of the business. The profitability is in the 20% that isn't silicon chips. Cloud and networking revenue rose from 30% in 2024, to 40% in 2025, to about 50% in 1H26, mostly servers, which are 85-90% of that. Capex grew 27% in 2025 and will rise another 40% in 2026, almost all for AI. Each server rack costs about US$5m-6m. Chips and memory make up over 80% of that cost. The rest, about 20%, is cables, connectors, busbar, power and liquid cooling, and this is where the profit is. Hon Hai makes roughly half of these parts itself, earning over 20% gross margin, versus low single-digit margin on parts it just buys and resells.
- Quanta: Thailand is the starting point of the AI server supply chain. This was the most Thailand-relevant meeting of the trip. Land and power in Taiwan are in short supply, so Quanta moved most of its server assembly lines to Thailand. The Thai plant is now 3-5 times the size it was in 2019. Thailand and the US together take about 85% of the group's investment. Boards are built in Thailand (the L6 stage) and shipped to the US for final assembly (L10). Thailand holds only 10-20% of the finished product's value, but a much bigger share of the early manufacturing. Quanta chose this site as it already holds a power licence. There is no AI server production in China.
- Quanta: The numbers, and a dip in notebooks. Servers make up 80-85% of Quanta's revenue. AI shipments are doubling this year. 2Q26 operating margin hit a record 4.0%, and 1H26 operating profit grew 27% yoy. The price of an AI rack has risen from US$2m-3m to US$7m-8m for the GB200 model. Since key parts make up 90-97% of the cost, margin rates fall even as profit dollars rise. On the client side, Quanta guided its own notebook shipments down over 20% in 3Q26, normally its busiest quarter, after two quarters of front-loaded orders. Its sharpest comment: The memory supply gap is only about 3%, but prices have risen far more than that. This means memory makers are rationing supply, not that supply has run out, and HBM chips are absorbing the wafers.
Analyst
Analyst
Sirithat Prasertwuthi
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