Declining PC Demand And Fierce Competition Will Weaken Outlook

Key Takeaways

• Shifting digital trends and major tech competitors are undermining ASUS's core hardware markets and challenging the company's market share and profitability.
  
• Heightened competition, market cyclicality, and geopolitical risks are increasing margin pressure and creating persistent threats to ASUS's operational stability.
  
• Strong innovation in AI and gaming, strategic supply chain expansion, and leveraging industry upgrade cycles position ASUS for sustained revenue growth and margin stability.

Catalysts

Researches and develops, designs, manufactures, sells, and repairs computers, communications, and consumer electronic products in Taiwan, China, Singapore, Europe, the United States, and internationally.

• Global shifts toward cloud computing, streaming, and mobile-first solutions are expected to steadily decrease long-term demand for personal computers and traditional consumer hardware. This will directly undermine ASUSTeK Computer's core markets, pressuring top-line revenue growth as broader digital experiences migrate beyond the device-centric model where ASUS is strongest.
  
• Intensifying competition from Chinese electronics and PC manufacturers, combined with the commoditization and standardization of hardware components, is set to accelerate price wars and further squeeze margins. This environment will drive down ASUS's profitability and limit its ability to sustain premium pricing, resulting in both lower net margins and increased earnings volatility.
  
• ASUSTeK Computer's overdependence on highly cyclical PC and gaming hardware markets leaves it exposed to fluctuating consumer demand and potential economic downturns, creating significant risks for revenue stability and contributing to unstable long-term earnings.
  
• The company faces persistent supply chain and production risks from ongoing geopolitical instability and the escalation of trade restrictions and tariffs-especially in the US, China, and Taiwan. These disruptions not only increase operating expenses and production costs but also threaten the timely delivery and competitive pricing of products in key growth markets, further dampening future profitability.
  
• Major technology giants such as Microsoft, Apple, and Google are expanding aggressively into hardware, leveraging deep ecosystem integration and supply chain advantages. This is expected to erode ASUS's already limited brand moat and market share while compressing net margins, as consumers increasingly gravitate toward integrated device-software ecosystems and ASUS faces growing difficulty differentiating its offerings over the long term.

ASUSTeK Computer Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on ASUSTeK Computer compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming ASUSTeK Computer's revenue will grow by 9.5% annually over the next 3 years.
• The bearish analysts are assuming ASUSTeK Computer's profit margins will remain the same at 6.3% over the next 3 years.
• The bearish analysts expect earnings to reach NT$50.7 billion (and earnings per share of NT$56.59) by about June 2028, up from NT$38.7 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 8.7x on those 2028 earnings, down from 13.4x today. This future PE is lower than the current PE for the TW Tech industry at 19.6x.
• 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 7.01%, as per the Simply Wall St company report.

ASUSTeK Computer Future Earnings Per Share Growth

Risks

• The rapid adoption and growth of AI PCs and generative AI solutions represent a long-term secular trend that ASUS is positioned to capture, especially as it aims for over 30% market share in Copilot+ PCs and expects the AI PC market to expand from roughly 10% of the PC market in 2024 to a potential 60% by 2026, supporting rising sales and ongoing revenue growth.
  
• ASUS has demonstrated strong innovation capacity and R&D investment, as seen in its early leadership in AI PCs, its award-winning gaming laptops and graphics cards, and its inclusion in Fortune's World's Most Admired Companies list, all of which contribute to product differentiation and premium brand recognition that bolster operating margins and long-term profitability.
  
• The global gaming and esports trend continues to accelerate demand for high-end gaming hardware, and ASUS has achieved a 30% market share in the gaming PC segment and 25% in the newest AI PC category, indicating continued strength in its core verticals that will drive top-line revenue and help maintain robust margins.
  
• ASUS is expanding its production footprint and supply chain flexibility, including new manufacturing hubs in the United States and diversification to mitigate tariff and geopolitical risks, which reduces operational disruptions and helps preserve stable earnings and gross margins even amidst macroeconomic challenges.
  
• The upcoming generational upgrades in GPUs (such as NVIDIA's RTX 50 series) and the Windows 10 to Windows 11 transition are fueling a significant PC replacement cycle, coinciding with ASUS's comprehensive product launches across price segments; these refresh-driven tailwinds support continued sales growth and improvement in both operating profit and EPS.

Valuation

• The assumed bearish price target for ASUSTeK Computer is NT$483.34, which represents two standard deviations below the consensus price target of NT$709.5. This valuation is based on what can be assumed as the expectations of ASUSTeK Computer's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NT$849.0, and the most bearish reporting a price target of just NT$410.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be NT$805.9 billion, earnings will come to NT$50.7 billion, and it would be trading on a PE ratio of 8.7x, assuming you use a discount rate of 7.0%.
• Given the current share price of NT$700.0, the bearish analyst price target of NT$483.34 is 44.8% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.