Goldman Sachs refutes "AI Bubble"! Summary after participating in Hon Hai conference call: AI server demand continues to grow

Goldman Sachs CEO David Solomon previously refuted the "AI bubble theory," believing that AI is not just a temporary speculation in the stock market, but a long-term revolution. The Goldman Sachs analyst team also communicated with senior executives of Foxconn in a conference call and believed that the demand for AI servers will continue to grow. The AI bubble may not completely burst this year or early next year.

Goldman Sachs analyst Allen Chang summarized the main points of the conversation with Foxconn management in a client report on Wednesday. The report stated that Foxconn management remains optimistic about the AI server business. According to Foxconn management, AI servers contributed to over 40% of the company's total server revenue in the second quarter of 2024, with a sequential growth of over 60% and a year-on-year revenue growth of over 100%. Management expects the revenue from AI servers to continue to grow sequentially by the end of 2024.

At the same time, Foxconn plans to start small-scale production of full rack AI servers by the end of this year and enter a rapid growth phase of mass production and shipment in 2025. Management is confident that Foxconn will be the first supplier to ship full rack AI servers by the end of this year.

Chang stated that the Goldman Sachs team remains "optimistic" about Foxconn and believes that its vertical integration, extensive customer base, research and development capabilities, strong balance sheet, and global production bases will continue to solidify the company's leading position in the AI server market.

Furthermore, Foxconn will continue to invest in AI servers ranging from L5 to L12 levels. The company has already prepared capacity for the demand in 2025 and will dynamically expand according to market demand. Capital expenditures grew by 14% in 2023 and by 33% year-on-year in the first half of 2024, reaching NT$63 billion (approximately USD 2 billion).

Analysis suggests that Foxconn's strategy is to capture 40% of the global AI server market. With the rise of global AI applications, these new advanced servers are becoming one of the company's main growth drivers. The optimistic outlook shared by management and Goldman Sachs analysts indicates that despite some concerns about overvaluation of certain chip companies, the so-called AI bubble may not completely burst this year or early next year.

In conclusion, Goldman Sachs analysts expect Foxconn's 12-month stock price target to be NT$257, representing a close to 38% upside from the current level. Foxconn fell by 2.18% in the Taiwan stock market on Wednesday, closing at NT$179.50.

In another Goldman Sachs report, it is projected that the capital expenditures for cloud computing of Microsoft, Google, Amazon, and Meta will continue to grow until 2025. In addition, Nvidia's data center revenue growth forecast continues to show parabolic growth. Nvidia's stock price fell by 3.50% on Wednesday

The communication results between Goldman Sachs analysts and Foxconn management also confirmed the CEO's statement that AI is not a bubble, but a long-term revolution that goes beyond temporary speculation in the stock market.

According to media reports, Solomon stated last week,

"Artificial intelligence is not a bubble. We are in the early stages of this trend, observing how it impacts business productivity."

Solomon mentioned that Goldman Sachs has been using artificial intelligence for decades. However, the latest developments have improved the availability of large language models, as well as the performance and speed of computer chips. He believes that this may "accelerate changes in business processes, which will be quite significant."

Goldman Sachs has long introduced AI projects that could potentially change the way Wall Street trades, such as the startup Louisa AI founded internally at the company five years ago, which helps banks and investors analyze data and content to identify trading opportunities. Goldman Sachs is also undergoing other AI-driven internal transformations and may introduce new generative AI tools to employees earlier next year