Quanta Sees Servers Reaching 90% of Revenue in 2027 as AI Expansion Accelerates

AI orders reshape Quanta's business

Quanta Computer expects servers to generate 85% to 90% of its revenue in 2027, as demand from cloud computing customers drives another round of factory investment in California and Thailand. Five major customers have reserved production capacity for 12 to 24 months, supporting a planned NT$40 billion to NT$45 billion in capital spending next year.

The Taiwanese manufacturer outlined the outlook at its November 11, 2026, earnings briefing, following a third quarter in which revenue reached NT$1.116 trillion, up 125.2% from a year earlier. Net profit attributable to shareholders rose 73% to NT$28.422 billion.

Quanta's growth comes with a financial squeeze. Its gross margin fell to 4.75%, the lowest in 17 quarters, while money owed by customers and inventory both reached records as the company prepared expensive new AI systems for production.

Management expects both AI servers and general purpose servers to deliver double digit growth in 2027. Notebooks are moving in the opposite direction: shipments are forecast to fall again, and their share of company revenue is expected to drop below 10% for the first time.

The central change is bigger than a rise in factory output. Quanta is selling increasingly expensive racks of computing equipment, purchasing costly components before customers pay, and investing in the electricity, cooling and testing needed to deliver those systems. Understanding those changes helps explain why revenue and profit can grow rapidly while the percentage retained as gross profit falls.

What the revenue targets actually mean

Servers are expected to account for 80% to 85% of Quanta's total revenue in 2026, rising to 85% to 90% in 2027. Within the server business, AI equipment currently contributes about 75% to 80%, with that proportion expected to exceed 80% next year.

Quanta separately forecasts AI servers at 60% to 65% of total company revenue for 2026. The forecast of more than 80% for 2027 refers to AI's share of server revenue. The company has not given a precise forecast for AI servers as a share of all company sales next year.

Quanta said its AI business could exceed its original target for growth of several times the previous year's level. General purpose servers have also performed better than expected, giving the company two growing businesses as notebook demand weakens.

Vice chairman Liang Tzu-chen described AI and general purpose servers as complementary parts of the business. In remarks translated from Chinese, he called them:

Twin stars.

Liang said stronger AI computing also needs support from general purpose servers, while AI applications and agents continue to develop. An AI agent is software designed to carry out tasks through a sequence of actions. Such services need computing infrastructure beyond the machines that perform the most intensive AI calculations.

More expensive racks can lift sales despite fewer shipments

Quanta expects the fourth quarter of 2026 to be a transition between product generations. AI rack shipments may fall slightly from the third quarter, yet AI server revenue is expected to rise because the new systems carry higher prices.

The company said its VR200 server rack costs twice as much as the previous generation. Shipment volumes are expected to increase noticeably in the first quarter of 2027 as the new platform reaches a stronger production phase.

A rack combines computing equipment and related systems into a unit that can be installed in a data centre. When each rack contains more valuable chips and supports greater computing power, the manufacturer can record higher sales even while shipping fewer racks.

Quanta experienced that pattern in the third quarter: AI server shipment volume slipped, but higher average selling prices lifted revenue. General purpose server shipments rose only slightly from the preceding quarter, while their average selling prices also increased.

An earlier company outlook described GB300 systems entering mass production and a subsequent move to Nvidia's Vera Rubin platform. Quanta also expected shipments of AI servers using application specific integrated circuits, or ASICs, to double in the following year. ASICs are chips designed for particular tasks, giving the company another category of AI systems alongside servers using graphics processing units, or GPUs.

Record earnings meet a thinner gross margin

Quanta earned NT$78.266 billion in net profit during the first nine months of 2026, up 48.3% from a year earlier. Revenue rose 99.4% to NT$2.961 trillion, while earnings per share reached NT$20.03, already above the NT$19.45 earned during all of 2025.

Third quarter operating profit reached NT$32.204 billion, up 75.3% from a year earlier. Gross profit rose 56.3% to NT$53.024 billion, even as gross margin declined to 4.75%. Operating margin was 2.89%.

Gross margin measures the share of revenue left after the direct cost of producing goods. Quanta's 4.75% margin means it retained NT$4.75 in gross profit for every NT$100 of sales, before paying expenses such as research, administration and financing.

High component costs help explain the pressure. When Quanta buys expensive chips and includes their value in the price of a finished rack, both revenue and production costs rise sharply. The company's manufacturing and integration earnings can increase in dollars while becoming a smaller percentage of sales.

Senior vice president and chief financial officer Yang Jun-lie urged investors to examine profit amounts and returns on invested capital alongside margins. Operating profit rose 41.2% in the first nine months, and management said return on invested capital remained above 20%. That measure compares operating returns with the capital committed to running the business.

Research spending also increased as Quanta prepared new AI products for production. Third quarter operating expenses reached about NT$20.8 billion, compared with NT$17.8 billion in the second quarter, with research and development accounting for much of the increase.

Who buys the chips changes the financial picture

Quanta is negotiating with customers to change how components are supplied. Under its buy and sell model, Quanta purchases materials, assembles the system and sells the finished equipment. The value of costly parts is included in its recorded sales.

Under consignment, the customer supplies key components, such as GPUs or memory. Quanta needs less money to purchase those parts, and the value of customer supplied materials is excluded from its sales. That can produce a higher margin percentage alongside a lower revenue figure than the purchasing model.

Yang addressed the tension between demands for higher margins and continued revenue growth. In remarks translated from Chinese, he said:

The market wants Quanta's gross margin to rise, while also wanting revenue not to decline because of consignment deductions. Those two wishes are contradictory.

Quanta expects the buy and sell model to represent more than half of its business in 2027, with that approach still dominant during the first half. Contract changes require negotiations with individual customers, so the move toward more customer supplied materials will take time.

For the fourth quarter, management expects gross margin to decline slightly from the third quarter. It is targeting an operating margin broadly level with the third quarter, despite the changing product mix and weaker notebook volumes.

Expensive components tie up more cash

Quanta ended the third quarter with approximately NT$931.8 billion in accounts receivable and NT$856.1 billion in inventory. Accounts receivable is money customers owe for goods already sold; inventory includes components and equipment awaiting completion or delivery.

Together, those balances amounted to about NT$1.788 trillion. Their size shows the scale of materials and customer payments moving through the business as Quanta prepares the next generation of racks. The company attributed the inventory build partly to advance purchases of expensive components for new GPU platforms.

Customer supplied materials could reduce some of that funding need. Quanta would purchase fewer costly parts itself, leaving less of its money committed before a finished system is delivered and paid for.

Quanta said it produces against customer orders and has arrangements to reduce the cost of temporary delivery delays. According to management, customers delaying collection would take the materials and compensate the company for interest and storage expenses. Such arrangements matter when a relatively small number of racks can contain a large value of components.

California and Thailand take priority after factory deal ends

Quanta spent approximately NT$34.6 billion on capital investment in the first nine months of 2026, including NT$12.8 billion in the third quarter. California and Thailand accounted for nearly 80% of that spending.

The company expects to meet its target of doubling AI production capacity by the end of 2026 compared with the end of 2025. Its NT$40 billion to NT$45 billion investment plan for 2027 is described as flat to slightly higher than the full year level for 2026.

Quanta terminated its planned acquisition of AUO's Huaya factory after the companies failed to agree on facility specifications and handover timing. Capacity originally intended to begin production there in 2028 will instead be addressed through flexible alternatives and overseas investment, with California and Thailand remaining the focus.

Management said the global AI capacity expansion timetable remains unchanged. The spending priorities are shifting: production lines that mount components onto circuit boards have largely been expanded, while electricity capacity, cooling and system testing now need more investment.

New racks concentrate more computing power in each unit, increasing their electricity use and testing requirements. Quanta plans further investment in testing for advanced server power systems, so expansion increasingly involves preparing a factory to power and verify equipment rather than simply adding assembly lines.

Customer commitments support the expansion schedule

Five major cloud service providers have made capacity reservation commitments lasting 12 to 24 months, Quanta said. These companies operate large computing networks and buy servers to provide services to other businesses and consumers.

Quanta said customers are planning AI products as far as two years ahead. It is concentrating investment on electricity and cooling infrastructure that can support different generations of GPUs, ASICs and customer designed chips, while leasing factories to limit property investment. Depreciation, the gradual accounting charge for equipment and facilities, represents about 0.5% of operating costs.

The company's next production and investment milestones span several years:

• Fourth quarter of 2026: new AI platforms begin contributing more revenue, despite an expected slight decline in rack shipments from the third quarter.
• End of 2026: AI production capacity is targeted to reach twice its level at the end of 2025.
• First quarter of 2027: shipments of the VR200 platform are expected to increase noticeably.
• During 2027: planned capital spending totals NT$40 billion to NT$45 billion.
• During 2028: capacity previously planned for the AUO factory is to be accommodated through other facilities and overseas expansion.

Earlier market forecasts also anticipated prices growing faster than shipment volumes. Estimates published on June 2, 2026, projected server shipments rising from 3.04 million in 2025 to 3.64 million in 2026, an increase of about 20%, while server revenue was forecast to grow 103% to NT$3.1 trillion. Those estimates illustrate the growing financial weight of more expensive systems.

Notebooks face weaker demand and higher costs

Quanta shipped 9.6 million notebooks in the third quarter, down 24% from a year earlier. The decline from the second quarter was given as 11%, although a figure of 17% was also published.

The company expects another double digit quarterly shipment decline in the fourth quarter and a reduction of 15% to 20% for the full year. Shipments are forecast to fall again in 2027, broadly in line with the wider notebook industry.

Liang warned that memory prices could add further pressure if they fail to decline. More expensive memory raises component costs for notebooks, personal computers and other products, with the effect varying according to each product's selling price.

Quanta's notebook business therefore faces pressure from both weaker volumes and higher material costs. At the same time, the growing value of AI rack sales is making notebooks a smaller part of company revenue. Management expects their contribution to fall to a single digit percentage in 2027, while server growth supports continued expansion for the company.

Key Points

• Quanta expects servers to contribute 85% to 90% of total revenue in 2027.
• AI equipment is forecast to exceed 80% of server revenue next year.
• Third quarter revenue reached NT$1.116 trillion, while net profit rose 73% to NT$28.422 billion.
• Gross margin fell to 4.75% as costly components, purchasing arrangements and notebook weakness affected the sales mix.
• Five major cloud customers have reserved capacity for 12 to 24 months.
• Capital spending is planned at NT$40 billion to NT$45 billion in 2027, with California and Thailand central to expansion.
• Notebook shipments are forecast to fall 15% to 20% in 2026, with another decline expected in 2027.