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as overseas ai bull stocks have collapsed, the share prices of domestic ai listed companies have also seen a significant correction. foxconn industrial internet, which benefited from its ai server target, saw its market value evaporate by 210 billion yuan in less than two months.

text｜li jian

two years ago, the emergence of openai brought global ai stocks to a head. on the other side of the ocean, nvidia and amd, which sell shovels, have soared. on june 18, 2024, nvidia surged 3.51%, with a market value of over $3.335 trillion, surpassing apple and microsoft to become the world's most valuable company.

amd has soared from $50 per share in october 2022 to $1,229 per share in early march 2024, an increase of more than 23 times. however, after two years of hype, global ai concept stocks have seen a significant correction. among them, amd has been correcting since hitting a record high in march, with a recent decline of 68.9% to $382.8 per share during intraday trading on september 6. however, looking at the entire year of 2024, amd still has a 50% increase.

from a domestic perspective, industrial foxconn, which benefited from the concept of ai servers, rose from 12.29 yuan per share at the beginning of 2024 to a new high of 28.67 yuan per share in early july, an increase of more than 133%. but then industrial foxconn also ushered in a continuous decline. on september 9, it hit a recent low of 18.10 yuan per share. in other words, in two months, the market value of industrial foxconn evaporated by more than 210 billion yuan. as of press time, industrial foxconn closed at 18.75 yuan per share, with a total market value of 372.523 billion yuan.

all along, foxconn's performance in the capital market has been completely dependent on its performance. recently, the abnormal movement of foxconn's stock price is also closely related to its performance that did not meet expectations. because of ai servers, foxconn has benefited from it. but at present, foxconn seems to be trapped in ai servers.

success is due to ai

foxconn industrial internet's business is mainly divided into three parts: cloud service equipment, industrial internet, and communication and mobile network equipment.

among them, communications and mobile devices account for the majority of foxconn's revenue. in 2023, this business will generate 278.9 billion yuan in revenue, accounting for 58% of total revenue. in the first half of 2024, this business will achieve high single-digit year-on-year growth.

"digital intelligence research society" found that the communications and mobile network equipment business mainly consists of three parts: providing high-precision mechanical components to smartphone customers such as apple, providing network equipment such as switches, routers and set-top boxes to customers such as cisco and huawei, and providing base stations, optical transmission equipment and other telecommunications equipment to customers such as huawei, nokia and ericsson.

although communication and mobile network equipment account for the bulk of foxconn's revenue, the market is paying attention to foxconn's cloud service equipment business. foxconn's business is mainly oem servers. foxconn has always provided server oem services to overseas customers such as nvidia and amazon, and domestic customers such as jd.com and alibaba.

in recent years, with the rapid development of the ai ​​industry, the ai ​​server industry has become a "pig on the wind". as one of the odm manufacturers of enterprise servers such as overseas cloud service providers microsoft and amazon, industrial foxconn's performance has ushered in a surge. benefiting from customers' continuous orders for ai servers, industrial foxconn's revenue increased by 28.7% year-on-year in the first half of 2024, and its net profit attributable to shareholders increased by 22%. "digital intelligence research society" found that industrial foxconn's revenue growth and net profit growth in the first half of the year both created new highs in recent years.

cloud computing business has become the brightest star in foxconn's business. in 2023, cloud service business accounts for about 40% of total revenue. but by the second quarter of 2024, the proportion of foxconn's cloud service business revenue in total revenue reached 55%, which is the most obvious change. behind the change is that cloud computing revenue in the second quarter increased by more than 70% year-on-year and more than 30% month-on-month.

trendforce's research report is also very optimistic about the prospects of ai servers. it is expected that the annual shipment of ai servers will reach 1.67 million units in 2024, with an annual growth rate of 41.5%. the capital market has realized and digested the explosive performance of foxconn industrial internet in advance.

on july 11, foxconn's share price hit a new high of 28.67 yuan per share, with a total market value of nearly 570 billion yuan. but since then, foxconn's share price has started to fall, and on september 9, it fell to a recent low of 18.10 yuan per share, a drop of more than 36.8%, and its total market value evaporated by more than 210 billion yuan.

this is a significant drop for foxconn. in the view of digital intelligence research, the recent decline is undoubtedly the result of investors voting with their feet. the market has begun to rethink the company.

high growth is difficult to maintain

the "digital intelligence research society" found that the prospects of ai servers are bright, but for foxconn industrial internet, the gross profit of this business is not high. the annual gross profit margin of 4%-5% is significantly lower than the gross profit margins of the other two businesses. in addition, as the proportion of cloud service equipment business in total revenue increases, foxconn industrial internet's gross profit has been put to an unprecedented test.

in the second quarter of 2024, the gross profit of foxconn was only 6 percentage points, down 0.97% from the same period last year and down 1.64 percentage points from the previous quarter. the gross profit index has created a new low in the past 10 quarters. as a company with a market value of hundreds of billions, such a significant change in gross profit will undoubtedly affect the profit situation in the future.

at the same time, as time goes by, the supply and demand relationship of ai servers, an industry with broad prospects, is bound to ease. as a result, the gross profit margin of ai servers is likely to continue to decline. it is worth mentioning that foxconn industrial internet did not disclose this data in its 2024 first half annual report.

judging from the situation of amd overseas, it is facing a similar situation to foxconn. revenue has grown rapidly, but gross profit margin has declined significantly. data shows that in the second quarter of 2024, amd's gross profit margin was 11.3%, a decrease of 5.8 percentage points from the same period last year and a decrease of 4.3 percentage points from the previous month. such performance of gross profit margin directly caused the stock price to fall.

behind the decline in gross profit margin is the intensified competition in the industry. various server oem companies have entered the market and are trying to grab a piece of the pie by offering low prices.

as competition intensifies, whether foxconn can maintain high growth in the future will be the focus of the industry. there is no doubt that the market will no longer blindly invest in ai in the future, but will pay more attention to returns. after the barbaric era, the era of intensive cultivation and pursuit of returns is coming. even nvidia, which is now selling shovels, is expected by the market to slow down the sales growth of gpus and servers. what reason do we have to continue to bet on the high growth of foxconn?

from this perspective, the days left for foxconn industrial internet to "make money without doing anything" are numbered.