Delta Electronics Earnings: More Visibility in AI Servers and EVs; Automation Outlook Uncertain

We nudge our fair value estimate on narrow-moat Delta Electronics 2308 up by 5% to TWD 357, corresponding to 22 times 2024 P/E, after incorporating a more bullish view on electric vehicle and artificial intelligence server demand. However, after Delta’s shares rallied 25% in the last three months, we think EVs and server-related upside is priced in.

We raised 2025-27 firmwide revenue and EPS estimates by 4%-5% and 3% in 2024 as there is more visibility on AI servers demand. Management said AI servers made up 15% of server revenue, or 4%-5% of overall sales in the first half, but say the figure should be higher as only graphics processing unit-based AI servers can be reliably identified by their higher-wattage power supply units. Our current base case now assumes internet giants are in an arms race to stack up computing power, but not a scenario where nontech companies build on-site AI servers to ensure data ownership and security pervasively.

Visibility of EV-related demand also improved compared with three months ago. Western automakers are expanding co-operation with Delta Electronics to include their Chinese joint ventures. Other than technical strengths, we think Delta’s status as a non-Chinese player with a sizable ex-China manufacturing capacity should resonate with global automakers. The EV business is making small profits for another quarter, which soothes our concern that Delta will be harmed by price wars between EV makers for now.

We predict telecom power and building automation will underperform in the next few quarters. Telecom companies are tapering their 5G investments as profitable locations are mostly covered and there is still no must-have application that requires 5G connections. Building automation outlook is uncertain as a result of China’s unclear plan to boost the economy and factory investments are unenthusiastic given weak exports.