- Delta Electronics (2308:TW), a global supplier of core AI data center power and thermal management solutions, issued a forward-looking warning indicating that rising oil prices and raw material shortages are exerting substantial upward pressure on production costs for the upcoming quarters.
- The company's first-quarter financial data reflected strong expansion, with revenue increasing significantly by 34% year-on-year to NT$159.35 billion and gross profit rising 56% year-on-year to NT$59 billion, demonstrating the profit-driving effect of high-value-added AI infrastructure products.
- To address the ongoing supply chain bottlenecks, Delta Electronics has clearly stated plans to expand its production capacity in China, Thailand, the United States, and Taiwan, reiterating that its total capital expenditure by 2026 will surpass the benchmark of NT$46.1 billion set for 2025.
Capital Expenditure and Global Capacity Expansion Matrix
Alongside releasing strong first-quarter financial data, Delta Electronics emphasized the current global capacity strain. Faced with exponential demand for high-power supplies and liquid cooling systems from core customers like Nvidia (NVDA:US), Google (GOOGL:US), and Meta Platforms (META:US), the company is compelled to accelerate its global capacity layout. Management reaffirmed that to align with downstream cloud service providers' (CSP) capital expenditure cycle, Delta Electronics' total capital expenditure for this year will exceed NT$46.1 billion (approximately $1.46 billion) set for 2025. This counter-cyclical expansion strategy covers key manufacturing bases in mainland China, Thailand, the United States, and Taiwan, aiming to mitigate geopolitical risks via a multi-centered supply chain network and shorten delivery cycles for data centers of major North American tech companies. While rapid expansion of capacity matrix increases depreciation and amortization pressures in the short term, it lays the foundation for securing long-term market share for next-generation AI chip accessories.
Margin Expansion and Raw Material Cost Struggle
Judging by first-quarter performance, Delta Electronics is experiencing the benefits of product structure optimization. The company's quarterly revenue reached NT$159.35 billion (approximately $5.02 billion), with a year-on-year growth rate of 34%; more critically, gross profit soared to NT$59 billion (approximately $1.86 billion), showing an impressive 56% year-on-year increase. The growth rate of gross profit significantly outpaced revenue growth, indicating a structural leap in gross margin levels, mainly attributable to the increased share of AI data center power supplies and advanced liquid cooling modules, which have high entry barriers, in total revenue. However, the cost warning issued by management should not be overlooked. Rising international oil prices are directly pushing up global logistics costs, while structural shortages of key conductive and heat-conducting metals like copper and aluminum are starting to erode this profit cushion. If the upward slope of raw material costs in the coming quarters surpasses the product's premium margin, its gross margin expansion momentum may face short-term headwinds.
Micro Inflation Spillover Effects from AI Infrastructure
In this report, Delta Electronics made a rare macro observation that "AI demand is driving signs of inflation." This statement reveals the unexpected resonance between the tech industry cycle and the traditional macroeconomic cycle. To support the power density in a single server cabinet rising from the traditional tens of kilowatts to over a hundred kilowatts for AI servers, basic components across the entire supply chain (such as passive components, high-end transformers, and specialized cooling fluids) are facing severe supply-demand imbalances. This micro supply chain shortage triggered by the AI arms race grants upstream suppliers greater pricing power, thereby causing the per-unit cost of electricity in core data center construction and the cost of unit computing power construction not to decrease but increase. If this micro-level inflation propagates down the tech industry supply chain, it may eventually raise commercial pricing for cloud computing leasing and even delay the AI application deployment pace of some small and medium-sized enterprises.
Valuation Premium vs. Market Benchmark Performance
As the second largest core stock by market capitalization on the Taiwan Stock Exchange, Delta Electronics currently has a market cap of $178.46 billion, second only to the wafer foundry giant Taiwan Semiconductor Manufacturing Company (2330:TW). Its stock price has jumped 124.82% year-to-date, not only absorbing past valuation discounts but also significantly outperforming the overall rise of 34.4% in the Taiwan Weighted Index (TWSE:TAIEX). This huge excess return reflects the strong recognition by global institutional investors of the "AI water seller" logic. On the eve of Thursday's earnings release, the company's stock price closed flat, showing the market's search for a new pricing balance point between strong historical earnings and cautious future cost guidance. The stock performance in the next few quarters will highly depend on whether the company can successfully pass on the increased raw and logistics costs to downstream tech giants with ample cash flow through scale effects and technological iteration.
