AVC (3017)

Equity Research 13 August 2026 | 9:07AM HKT

AVC (3017.TW): Liquid cooling component ASP and GM upside on the rising complexity of server racks; July in line; 2Q26 beat; Buy

AVC’s Jul revenue was up 57% YoY / 6% QoQ to NT$19bn, largely in line with our Allen Chang | estimate. We attribute the strong YoY growth to the strong shipments of AI server Goldman Sachs (Asia) L.L.C. liquid cooling components, riding on the increasing AI server end demand and a Verena Jeng growing liquid cooling penetration rate. We model sequential revenue growth in | Goldman Sachs (Asia) L.L.C. Aug-Dec, considering (1) rising shipments of next-generation rack-level AI servers, (2) an increase in liquid cooling dollar content in next-generation AI server racks Yifan Hu | Goldman Sachs (Asia) L.L.C. given their growing complexity, and (3) a rising liquid cooling penetration rate in both ASIC and GPU AI servers. We expect AVC’s net income to grow at a +52% CAGR in 2025-28E, riding on the strong AI spending, a growing liquid cooling penetration rate, and AVC’s leading market position in total solutions (air cooling, liquid cooling with various components / systems), strong R&D and manufacturing, and strong capacity expansion with diversification. Maintain Buy.

Exhibit 1: AVC monthly revenue trend

2025-26 monthly revenues YoY(RHS) NT$m 25,000 160%

Source: Company data, Goldman Sachs Global Investment Research

Exhibit 2: AVC monthly/quarterly revenue summary Jul-26 Aug-26E Sep-26E Oct-26E Nov-26E Dec-26E 3Q26E 4Q26E Rev (NT$m) 18,590 19,334 20,084 21,892 24,300 27,557 58,008 73,749 Rev YoY 57% 53% 38% 33% 40% 98% 49% 54% Rev MoM / QoQ 6% 4% 4% 9% 11% 13% 18% 27% GS estimates (NT$m) 18,941 Act vs. GS -2%

Source: Company data, Goldman Sachs Global Investment Research

2Q26 GM beat: AVC’s 2Q26 revenue was up 66% YoY, largely in line with our estimate and Bloomberg consensus. GM delivered strong QoQ and YoY improvement, reaching 32.6%, which we attribute to a rising contribution from AI server liquid cooling components, which carry a higher GM than other product lines.

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The 2Q26 opex ratio improved to 5.1%, better than our estimate and Bloomberg consensus; along with the higher-than-expected non-op income, this led 2Q26 net income to come in 23% / 11% higher than our estimate / Bloomberg consensus.

Exhibit 3: AVC 2Q26 result snapshot NT$m 2Q25 1Q26 2Q26 QoQ YoY GS Act / GS Cons. / Cons. Revenues 29,595 49,038 49,121 0% 66% 50,072 -2% 50,258 -2% GP 7,224 14,597 15,999 10% 121% 14,890 7% 15,587 3% OP 5,180 12,016 13,481 12% 160% 11,825 14% 12,646 7% Net income 3,997 7,916 9,567 21% 139% 7,779 23% 8,656 11% Margins GM 24.4% 29.8% 32.6% 29.7% 31.0% OPM 17.5% 24.5% 27.4% 23.6% 25.2% NM 13.5% 16.1% 19.5% 15.5% 17.2%

Source: Company data, Goldman Sachs Global Investment Research, Bloomberg

Earnings revisions: We factor in AVC’s Jul revenue and 2Q26 results and raise our 2026-28E net incomes by 11% / 7% / 8%, mainly on higher revenues and GMs. Our 2026-28E revenues are revised up by 1% / 2% / 2%, mainly on a higher contribution from AI server liquid cooling components. 2026-28E GMs are revised up to reflect the 2Q26 GM beat, the rising complexity of liquid cooling components driving profitability, and AVC’s rising adoption of automation equipment. 2026-28E opex ratios are largely unchanged.

Exhibit 4: Earnings revisions 2026E 2027E 2028E NT$m Old New Diff % Old New Diff % Old New Diff % Revenues 228,608 229,917 1% 296,412 302,446 2% 337,072 344,492 2% GP 68,006 71,886 6% 88,329 94,949 7% 101,032 108,063 7% OP 54,437 59,013 8% 74,101 79,524 7% 86,707 92,389 7% Net income 36,253 40,313 11% 52,569 56,475 7% 62,039 66,823 8% Margins GM 29.7% 31.3% 29.8% 31.4%…