// Continued Mass Shipments of AI Equipment Unleash Computing Power Dividends

Following the market close on August 11, Foxconn Industrial Internet (601138.SH) released its semi-annual report for 2026, showcasing record-breaking revenue and net profit for the corresponding period, with explosive growth in its AI server-related businesses.

As a global frontrunner in AI server OEM manufacturing, Foxconn Industrial Internet is reaping significant benefits from the computing power expansion cycle. However, concerns regarding inventory, exchange rates, and cyclical fluctuations remain a central point of discussion in ongoing market debates.

Profit Quality Shows Continued Improvement

In the first half of 2026, Foxconn Industrial Internet achieved a remarkable milestone by surpassing 500 billion yuan in half-yearly revenue for the first time, recording a total of 557.861 billion yuan, marking a year-on-year increase of 54.63%. Net profit attributable to shareholders also exceeded the 20 billion yuan mark for the first time, reaching 23.740 billion yuan, a year-on-year surge of 95.99%.

However, this stellar performance failed to ignite positive sentiment in the secondary market. By the close of trading on the announcement day, Foxconn Industrial Internet's stock price had declined by 4.58% to 66.01 yuan, with a total market capitalization of approximately 1.31 trillion yuan.

A closer look at the quarterly data reveals the resilience of the company's growth trajectory.

In the first quarter of 2026, Foxconn Industrial Internet reported revenue of 251.078 billion yuan and net profit attributable to shareholders of 10.595 billion yuan. In the second quarter, revenue soared to 306.783 billion yuan, representing a quarter-on-quarter increase of 22.19%, while net profit attributable to shareholders climbed to 13.146 billion yuan, a quarter-on-quarter rise of 24.08%. This marked a significant milestone, with quarterly revenue surpassing 300 billion yuan for the first time.

Notably, Foxconn Industrial Internet has maintained net profit attributable to shareholders exceeding 10 billion yuan for four consecutive quarters, transforming this level of profitability from a periodic bonus into a normalized business outcome.

Core indicators underscore structural optimization. In the first half of 2026, Foxconn Industrial Internet's revenue growth rate stood at 54.63%, while net profit growth nearly doubled, significantly outpacing revenue growth. Basic earnings per share reached 1.20 yuan, a year-on-year increase of 96.72%. The weighted average return on equity (ROE) also increased by 5.72 percentage points year-on-year.

In the first quarter of 2026, the gross profit margin halted its multi-year decline and began a steady recovery, increasing by 0.55 percentage points year-on-year to 7.15%. This improvement was driven by the ongoing replacement of low-margin traditional OEM businesses with high-value-added AI computing power products.

At the market level, the earnings preview in early July had already set growth expectations, leading to the early digestion of positive news and triggering capital speculation centered around 'realization.' Beyond rapid growth, investors have started to reevaluate the sustainability of prosperity and the alignment of valuations, with diverging opinions gradually widening.

Computing Power Fuels Growth

The primary driver behind this round of performance growth stems from the continuous expansion and structural transformation of the cloud computing segment.

In 2024, the business volumes of cloud computing and communication equipment were relatively balanced. By 2025, cloud computing revenue accounted for 66.75% of the total. In the first half of 2026, revenue from this segment surged by 75.7% year-on-year, firmly establishing itself as the main engine of performance.

A deeper analysis of the product structure reveals even stronger growth momentum. In the first half of 2026, revenue from AI servers for cloud service providers increased by 2.3 times year-on-year. Shipments of GPU AI cabinets rose by 3.2 times, while shipments of ASIC AI cabinets and ASIC CPU servers increased by 3 times and 2.5 times, respectively.

Critically, the simultaneous ramp-up of GPU and multi-route ASIC products reduces reliance on a single chip route, effectively diversifying supply chain risks. The communication business is riding the wave of computing power demand, with strong demand for 800G+ switches and high-speed network cards. The successful prototype delivery of CPO all-optical switches has established a second growth curve.

Against the backdrop of the broader industry, global cloud providers continue to ramp up their computing power investments.

According to TrendForce data, the total capital expenditures of the world's top nine cloud service providers are projected to exceed $886.7 billion in 2026, representing a year-on-year increase of 90%. AI server shipments are also expected to grow by nearly 31% annually.

Amid this surge in external demand, the market share advantages of leading suppliers are rapidly materializing. Goldman Sachs research predicts that Foxconn Industrial Internet's global market share in AI server ODM will rise from 55% in 2026 to 69% by 2028.

This market share expansion is no coincidence. Leveraging long-standing customer certification barriers, Foxconn Industrial Internet has deepened its partnerships with leading overseas cloud providers while advancing the development of the Vera Rubin next-generation platform and liquid-cooled computing solutions, solidifying its industry leadership.

Notably, Foxconn Industrial Internet did not distribute cash dividends in the first half of 2026, with funds earmarked for capacity expansion and cutting-edge technology R&D.

Exchange Rates, Inventory, and OEM Challenges

While the global AI infrastructure construction boom has opened up vast market opportunities, enabling Foxconn Industrial Internet to fully capitalize on the industry's upward trajectory, several signals in the financial report warrant caution, with medium- to long-term uncertainties persisting.

Exchange rate and financial pressures have become increasingly prominent. In the first half of 2026, financial expenses surged by 749.91% year-on-year to 1.912 billion yuan, primarily due to interest expenses and exchange rate fluctuations affecting foreign exchange gains and losses. Given the company's significant proportion of overseas business, continued exchange rate volatility will persistently impact profitability.

Inventory levels continue to climb. As of the end of June 2026, Foxconn Industrial Internet's inventory reached 192.109 billion yuan, a year-on-year increase of 56.25%, with inventory accounting for nearly 40% of total assets.

This inventory structure is highly dependent on the prosperity of the AI server market. If downstream cloud providers reduce capital expenditures and orders slow down, significant inventory write-downs could occur, directly impacting profit levels.

Deeper contradictions arise from the business model and industry cycles. Foxconn Industrial Internet's reliance on the OEM model imposes a natural ceiling on gross profit margins, with profit growth heavily dependent on scale expansion, making it difficult to achieve significant leapfrog improvements in profitability.

Meanwhile, growth is closely tied to the capital expenditure cycles of overseas cloud providers. If the computing power arms race cools down temporarily, order growth could face a slowdown. Additionally, as new capacity comes online globally, long-term industry competition may intensify, squeezing manufacturing margins.

The core logic of secondary market speculation is shifting. The market is no longer solely chasing short-term performance growth but is predicting the duration of the prosperity cycle. Given the current high base, sustained high growth rates are unlikely to be maintained indefinitely, with a slowdown in quarterly growth rates being highly probable in the future.

With a trillion-yuan market capitalization, Foxconn Industrial Internet is a quintessential computing power cycle asset. As long as global computing power construction continues, orders will remain supported. However, once the inflection point in capital expenditures arrives, both performance and valuations may undergo a dual adjustment.

Short-term financial reports can only confirm current prosperity. The key to determining long-term value lies in whether the company can continuously seize hardware iteration opportunities to navigate through industry cycles. (Source: Global Finance Talk)