SANM: AI Datacenter Rack Expansion Will Drive Future Upside Potential

Analysts nudged their price target on Sanmina higher to $180 from $150, citing a strong fiscal Q4, improving communications end market dynamics, and expanding AI datacenter rack opportunities, even as they flag ongoing macro uncertainty and execution risk around integrating and ramping the ZT Systems business with AMD.

Analyst Commentary

Bullish analysts highlight that the higher price target reflects greater confidence in Sanmina's medium term growth algorithm, supported by a stronger than expected fiscal Q4 and improving visibility in key growth markets.

Bullish Takeaways

• Bullish analysts see the communications end market exiting its inventory correction as a catalyst for resumed revenue growth and better asset utilization, supporting a higher earnings power and valuation multiple.
• The ZT Systems acquisition is viewed as strategically important, giving Sanmina full rack assembly capability for AI datacenters, which can expand the company's addressable market and justify a higher long term growth rate.
• Sanmina's role as a preferred NPI partner for AI GPU racks positions the company to benefit from large scale AI infrastructure buildouts, which bullish analysts believe is not yet fully reflected in consensus estimates.
• Recent AI partnerships and pipeline activity are seen as increasing the durability of Sanmina's growth, potentially smoothing cyclicality and supporting the step up in price target.

Bearish Takeaways

• Bearish analysts maintain a cautious stance on valuation, arguing that the higher price target already embeds optimistic assumptions about AI rack volumes and execution, leaving limited room for error.
• There is concern that the macro backdrop remains uncertain, which could pressure enterprise and communications spending and slow the pace at which new AI and datacenter programs translate into revenue.
• Execution risk around integrating the ZT Systems business and then ramping complex programs with AMD is flagged as a key overhang, with potential for cost overruns or timeline slips that could weigh on margins.
• Analysts note that the revenue impact from AI partnerships is difficult to quantify, given uncertainties over how many racks Sanmina will ultimately build and the possibility that customers select alternative partners for NPI and manufacturing.

What's in the News

• Announced a major expansion of its Energy business with a new Houston, Texas factory targeting the US energy market, slated to begin production in 2027 and supported by initial customer commitments (Key Developments).
• Entered an agreement with Koncar Electrical Industry Inc. to co design a custom medium voltage transformer for Sanmina and explore broader collaboration to support Koncar's US growth plans (Key Developments).
• Completed repurchase of 801,093 shares, representing 1.49% of shares outstanding, for $60.8 million under the buyback program announced January 27, 2025, with no shares repurchased in the most recent tranche period (Key Developments).
• Issued earnings guidance for the first quarter ending December 27, 2025, expecting revenue between $2.9 billion and $3.2 billion (Key Developments).

Valuation Changes

• Fair Value Estimate remains unchanged at $190, indicating no material shift in the intrinsic valuation outlook.
• Discount Rate is unchanged at 8.50%, reflecting a stable implied risk profile.
• Revenue Growth is effectively unchanged at about 37.29%, suggesting stable expectations for top line expansion.
• Net Profit Margin is steady at roughly 3.17%, with no meaningful revision to long term profitability assumptions.
• Future P/E is unchanged at 20.02x, signaling a nearly unchanged forward earnings multiple embedded in the model.