AI And Data Center Growth Will Shape Future Expansion

Key Takeaways

• Strong demand for AI and energy-efficient solutions, along with expansion in advanced markets, supports robust revenue growth and margin resilience.
  
• Focus on R&D, innovation, and transition to solutions and services boosts recurring revenue potential and reduces risk exposure.
  
• Heavy reliance on Asian manufacturing, exposure to geopolitical risks, segment weaknesses, slow service revenue growth, and innovation uncertainty threaten margins, revenue stability, and long-term competitiveness.

Catalysts

Provides power and thermal management solutions in Mainland China, the United States, Taiwan, Thailand, and internationally.

• Sustained investment in AI and data center infrastructure by hyperscalers is driving strong demand for Delta's power and cooling solutions, underpinning record revenues and margin expansion in these business lines; this positions Delta to capture ongoing top-line and operating income growth as global digitalization accelerates.
  
• Global energy efficiency and electrification initiatives are increasing demand for advanced power management and infrastructure solutions, benefiting Delta's high-margin segments, especially as enterprises look to meet decarbonization targets and adopt renewable energy, supporting future revenue and margin resilience.
  
• Expansion of Delta's presence in North America and Europe, combined with a diversified manufacturing footprint, reduces geopolitical and tariff-related risks, ensuring greater revenue stability and enabling the company to better capitalize on secular shifts in end markets.
  
• Continued emphasis on R&D investment and exploring new growth areas-such as automation, robotics, and integrated service offerings-positions Delta for long-term earnings growth by enabling technological leadership and supporting future product innovation.
  
• Progress in moving from a component supplier toward a solutions and services provider, including consideration of M&A in data center services and the launch of the Delta Robotic Research Center, is likely to enhance net margins and drive future recurring revenue streams.

Delta Electronics Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Delta Electronics's revenue will grow by 12.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.3% today to 11.2% in 3 years time.
• Analysts expect earnings to reach NT$75.3 billion (and earnings per share of NT$27.95) by about August 2028, up from NT$43.7 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting NT$122.9 billion in earnings, and the most bearish expecting NT$67.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 27.0x on those 2028 earnings, down from 36.9x today. This future PE is greater than the current PE for the TW Electronic industry at 20.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.75%, as per the Simply Wall St company report.

Delta Electronics Future Earnings Per Share Growth

Risks

• The company's ongoing exposure to geopolitical and trade risks-including tariff fluctuations in core manufacturing regions like Thailand and uncertainty around Taiwan's future tariff rates-could increase operating costs, disrupt global supply chains, and reduce profit margins if customers no longer absorb tariff costs, directly impacting net margins and earnings.
  
• Delta Electronics' manufacturing cost structure remains heavily reliant on production in Asia, and the company acknowledges the much higher costs and incomplete supply chain for manufacturing in the U.S.; persistent labor cost inflation or supply chain bottlenecks may erode gross margins and constrain earnings growth if not effectively managed.
  
• The company's Mobility segment has exhibited sustained weak demand and has swung to a loss, while Automation remains under pressure from macroeconomic headwinds; if these segments do not recover, Delta's revenue growth could become overly dependent on the currently strong but potentially cyclical data center and infrastructure markets, increasing overall business risk and impacting revenue stability.
  
• Revenue from value-added services lags far behind competitors (such as Vertiv), with management conceding it will take quite some time before service revenue becomes meaningful; this slow transition limits potential for higher-margin, recurring revenues, which can constrain net margin expansion and long-term earnings quality.
  
• Rapid technological change and uncertain adoption rates for next-generation products (e.g., liquid-to-liquid cooling, centralized rack power solutions) may delay expected demand or require incremental R&D and CapEx spends; if Delta fails to keep pace with innovation or customer adoption is slower than forecast, it risks product obsolescence and loss of market share, negatively impacting both revenue and earnings over the long term.

Valuation

• The analysts have a consensus price target of NT$643.722 for Delta Electronics based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NT$715.0, and the most bearish reporting a price target of just NT$450.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NT$675.3 billion, earnings will come to NT$75.3 billion, and it would be trading on a PE ratio of 27.0x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of NT$621.0, the analyst price target of NT$643.72 is 3.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.