Fundamentals remain strong despite recent market volatility, reiterate BUY

（以下内容从招银国际《Fundamentals remain strong despite recent market volatility, reiterate BUY》研报附件原文摘录）
中际旭创(300308)
CSP3 (Three Cloud Service Providers, namely Google, Microsoft and Amazon)plus Meta have announced their earnings recently. The Big Four spent anaggregate of US$52.9bn in capex in 2Q24 (vs. previous Bloomberg consensusest. of US$50.6bn), representing a surge of 57.1% following 30.4% growth in1Q24. The growth is on an already-high base after three years of growth hikesin capex (38%/34%/19% YoY) from 2020-22 and reaching a nearly historicalpeak (US$148bn) in 2023. Like Sundar Pichai said on Alphabet’s 2Q24 earningcall, “the risk of under-investing is dramatically greater than the risk of overinvesting.” The Big Four confirmed that they will continue to make heavyinvestments to meet the rising AI compute demand.
A number of investors have shown concern about the recent market turmoil inthe tech sector, which we believe was driven primarily by 1) mixed earningsresults, 2) fear of a US recession, and 3) uncertainty over the upcoming USpresidential election. Market sell-offs intensified even further after theunexpected interest rate hike by the Bank of Japan as carry trades of USD andyen unwind.
Despite those noises, we remain positive on the longer-term AI investmenttheme as growth of major CSPs’ capex remained intact in 2Q24. As a keybeneficiary, Innolight remains our top pick. We think Innolight’s currentvaluation (22.8x/15.3x 2024/25E P/E) appears attractive amid the recent marketpull-back (35%+ decline since peak in July). Reiterate BUY with new TP atRMB150.8. Previous target price of RMB130.71 had already accounted for theeffects of ex-rights and ex-dividends.
The impact of Nvidia’s design flaws in new chips should be limited.Another concern on Innolight is Nvidia’s recent design flaws on its new GPUchip (link). Investors worry this may lead to delay or even cancellations ofNvidia’s products, which may negatively affect the revenue outlook ofInnolight’s supply chain. However, the impact should be limited in our view,given that this issue has been identified in the early stage and is a solvabletechnique difficulty. The mass production of Blackwell chips will begin in4Q24 and the majority of revenue contribution is expected to be in 2025. Inaddition, any impact of new chip shipment should be offset by an extendedlifecycle of H series.
Reiterate BUY with adjusted TP at RMB150.76. We revise up revenueforecasts by 6%/11% and NP forecasts by 11%/23% for 2024/25E, onstronger capex outlook of cloud companies (16%/21% increase in 2024/25Ecapex forecasts from Feb and 5%/8% increase from May). Based on recentearnings calls, hyperscalers will continue to invest in AI infrastructure(39%/13% capex growth for the Big Four in 2024/25E by Bloombergconsensus). As a key beneficiary, Innolight‘s strong product portfolio(400G/800G/1.6T coming by 2024 year-end) is well-positioned to capitalizeon this AI momentum. The new TP is based on the same 30x 2024E P/E,which is 9% higher than 5-year historical avg. of forward P/E (27.4x),implying a PEG ratio close to 1x (vs. 32% 2024-26E EPS CAGR). Therefore,we think Innolight’s current valuation (22.8x/15.3x 2024/25E P/E) looksattractive. Reiterate BUY. Potential risks include: 1) intensified geopoliticaltensions, 2) slower-than-expected new product ramp-up progress, 3)slowdown in cloud capital spending and 4) supply chain bottlenecks.