Foxconn Q2 2026 Earnings: AI Servers Now Drive Over Half of Revenue, but a Supply Bottleneck Looms

Consolidated sales for the first half of 2026 reached NT$4.6 trillion, up 35% from a year earlier and a record for the period .

AI servers become the dominant business

The most significant strategic signal from the quarter is the composition of revenue. Foxconn's cloud and networking segment — which houses its AI server business — generated 51% of total Q2 revenue, crossing the halfway mark for the first time . Smart consumer electronics (including iPhone assembly) fell to 29% of revenue .

The company expects AI server rack shipments to more than double in 2026 . Foxconn already holds over 40% of the global AI server market and is targeting 50% . The company began mass-producing new AI racks in the third quarter of 2026, with shipments slated for the fourth quarter .

The CoWoS ceiling: a bottleneck by 2027

CEO Michael Chiang flagged CoWoS (chip-on-wafer-on-substrate) advanced packaging capacity as a potential ceiling on AI server growth by 2027, marking the main bottleneck the company is watching .

CoWoS is a 2.5D packaging technology used to integrate high-bandwidth memory chips with logic processors in AI accelerators. Demand from Nvidia and other AI chip designers has strained global CoWoS capacity, and Foxconn's warning suggests that even the world's largest electronics manufacturer cannot fully escape the packaging crunch.

Manufacturing diversification accelerates

Foxconn is expanding aggressively beyond China to mitigate geopolitical risk and capture new markets:

• Capital expenditure: The company forecasts a 30% increase in capital expenditure in 2026 versus 2025 .
• India: Foxconn injected approximately $37.2 million into its Indian manufacturing subsidiary, raising its ownership to 99.9% . The company now produces the majority of iPhones sold in the United States in India .
• Mexico: With a 20-year nearshoring presence, Foxconn is scaling Mexican facilities toward AI server and EV ecosystems, designating the country as its manufacturing platform for North and South America .
• Texas: The company acquired a 10-acre parcel north of Houston for AI server and EV production, investing $33 million .

These moves are part of Foxconn's "3+3" (sometimes expressed as "3+3+3") transformation strategy: three emerging industries (EVs, digital health, robotics) powered by three core technologies (AI, semiconductors, software) .

Stock market performance: strong earnings, weak returns

Despite record earnings and strong AI tailwinds, Foxconn's stock has notably underperformed the broader Taiwan market in 2026:

• Foxconn shares rose roughly 17% year-to-date as of the earnings report .
• The broader Taiwan Weighted Index (TWII) gained ~57% over the same period .
• The stock trades with a P/E around 19x and has a 52-week range of NT$187.50–NT$314.00 .
• Shares closed 2.7% higher on earnings day .

The divergence suggests investors are pricing in concerns beyond the strong AI-driven fundamentals. The CoWoS supply bottleneck, margin pressure in a capital-intensive expansion phase, and geopolitical uncertainty tied to the company's heavy Taiwan-China manufacturing base — even as it diversifies — are likely weighing on the stock's relative valuation.

Outlook

Foxconn maintained its forecast of "strong" full-year revenue growth . The company sees no let-up in AI infrastructure investment from governments and tech giants . But the CoWoS warning serves as a reminder that even the dominant player in AI server assembly faces supply-side constraints that could test its growth narrative in 2027.