China Merchants Securities released a research report stating that for 2026, the PCB industry chain is still recommended to focus on long-term investment opportunities in computing power boards, CCL and upstream main materials, equipment, AI edge-side applications, and import substitution. The firm generally believes that this round of AI-driven technological innovation upcycle will last longer and generate broader market demand. Currently, overseas CSP manufacturers hold optimistic outlooks for 2026 AI-Capex. Subsequent continuous iteration and upgrades of large AI models, along with broader applications, will gradually dispel market concerns about an "AI bubble." The computing power sector remains one of the strongest beta themes for 2026. AI continues to drive upward demand for high-layer-count and advanced HDI PCBs. The domestic PCB industry is continuously upgrading and accelerating the expansion of high-end production capacity while also deploying overseas capacity. The sector's earnings release is expected to have sustainability and elasticity. The firm is optimistic about domestic equipment manufacturers achieving overtaking in this round of AI-driven capacity upgrades. The main views of China Merchants Securities are as follows.

Reviewing the sector's performance in 2025: At the beginning of the year, driven by AI computing power demand, the PCB sector moved steadily upward. From January to February, with the emergence of the DS-R1 open-source model, the market questioned the growth in training-side computing power demand, leading the sector into wide fluctuations. In April, the Sino-US tariff war caused a significant pullback in the PCB sector, whose demand exposure is largely to the North American market. From late April to June, as sector holdings were digested, Q1 sector earnings exceeded expectations, and Q2 outlooks were positive, the market gradually became rational, leading to a sector valuation recovery. From June to September, as commercial application expectations for new technologies like NVIDIA's orthogonal backplanes and CoWoP strengthened, the PCB sector experienced a major upward wave. In October, Q3 quarterly results showed divergence, with the "NV chain showing weak reality and the ASIC chain exceeding expectations," causing the sector to fall first and then rise. From November to early December, the domestic "optical vs. copper" route debate, coupled with unsatisfactory test results for orthogonal backplane solutions, led to accumulating market doubts about an "AI bubble." The PCB sector trended weakly, experiencing an oversold rebound with slightly better-than-expected progress on the Google chain. By mid-to-late December, as the PCB solutions and material routes for the Rubin and Ultra platforms were gradually established, the market began to reverse and move upward. For the full year, the PCB sector achieved high-speed overall earnings growth. Since the beginning of the year, the PCB sector rose 149.9%, ranking first among electronic sub-sectors, outperforming the SW Electronics sector by 101.2 percentage points and the CSI 300 index by 132.2 percentage points.

Sentiment tracking: The industry is in an expansion cycle, with strong downstream AI computing power demand. Downstream end-demand: Although demand from edge-side applications like mobile phones and automobiles is expected to weaken in 2026, AI computing power construction is driving accelerated upgrades in servers and switches, keeping demand robust. Inventory: The monthly CP value for Taiwanese PCBs has been below 0.5 since July. Inventories for both mainland China and Taiwanese PCB manufacturers are increasing sequentially, indicating downstream manufacturers are building inventories and AI demand is strong. Full capacity utilization & supply tightness: Overall utilization rates for PCB manufacturers in H2 2025 were between 93-97%. Looking ahead to 2026, leading PCB manufacturers are mostly optimistic, with order visibility exceeding 3 months. Since the second half of 2024, PCB industry capital expenditure has gradually expanded, and the pace of capacity expansion has accelerated. The industry is entering a new round of capacity expansion, mainly focused on advanced HDI, high-layer-count rigid boards, and high-end substrate materials, with accelerated overseas deployment. Rising product prices: Copper prices are oscillating at high levels with an upward trend, gold prices remain high, copper foil processing fees and glass fiber cloth show price increase trends, while resin prices are relatively stable. Looking to 2026, the overall price trend for the PCB/CCL industry chain remains bullish. Overall PCB sentiment outlook: Combined revenue for Taiwanese PCB companies from January to November increased 12.8% year-on-year. Prismark expects Q4 to show accelerated year-on-year growth. The global PCB market size in 2025 is estimated to grow 15.4% to $84.9 billion. The firm expects the global PCB market size to grow to $940-980 billion in 2026.

Computing power PCBs: Demand for advanced HDI and high-layer-count boards is growing rapidly. The industry faces supply tightness and accelerated capacity expansion. Manufacturers with excellent product technology and accelerating capacity expansion are expected to continuously benefit from industry dividends. Overall, North American CSPs maintain an optimistic outlook for 2026 AI-Capex, estimated at approximately $550 billion for 2026, a year-on-year increase of about 25%. According to Prismark's upward revision, the server PCB market size CAGR from 2024 to 2029 is expected to reach 18.7%, growing to $25.7 billion, making it the largest application field for PCBs. Intensifying competition in computing power systems: NVIDIA, with its Rubin and Feynman series as core platforms over the next three years, is accelerating iteration and leading industry innovation. ASICs like Google TPU and AWS Trainium, along with domestic computing power chip manufacturers such as Huawei's Ascend and Cambricon's Siyuan, are catching up rapidly, driving high-speed growth in global AI PCB demand. The continuous iteration and upgrade of AI servers, demanding higher performance for high-speed data transmission, are pushing PCBs to accelerate upgrades towards advanced HDI. The increase in HDI layers will further amplify the industry's demand for high-end capacity. Prismark estimates the CAGR for the AI/HPC server HDI market size from 2024 to 2029 to be as high as 30%, reaching $4.7 billion. The firm believes that against the backdrop of robust global computing power demand and accelerating technological progress, the supply of high-end PCB capacity will remain tight in 2026. A rough estimate suggests the effective PCB capacity supply from domestic listed companies that can meet AI demand is around 120 billion yuan, while demand is estimated to be around 150 billion yuan.

Edge-side PCBs: The trend towards AI integration will drive PCB specification upgrades. Focus on innovation from new products by Apple, OAI, and others. 1) Consumer terminals: AI upgrades and the continuous launch of new form factors like foldable screens and AI glasses will drive terminal PCB upgrades and increased value. Focus on new product innovations from leading technology companies in 2026. 2) Automotive: Automotive market growth is expected to slow in 2026, but accelerated intelligent upgrades will drive increased value for automotive PCBs.

Substrates: Upward demand for AI computing power chips and memory is driving a significant industry recovery. Domestic high-end substrates are expected to achieve new breakthroughs. Accelerated deployment of AI infrastructure in 2025 created "demand resonance" in the two core areas of computing power chips and memory chips, rapidly increasing global substrate capacity utilization. Looking ahead, growth momentum from new AIGPU and ASIC products and high-end memory chip procurement will continue throughout 2026. Upstream Low CTE glass cloth material supply is tight. Under the supply-demand gap, substrate prices are expected to continue rising. Domestic substrate manufacturers will benefit from the rebound in profitability driven by rising substrate prices in this cycle. The tight supply of high-end ABF substrates will provide an excellent window of opportunity for mainland manufacturers to enter the supply chains of core domestic and international customers.

CCL: High-speed AI demand combined with better-than-expected price increases is pushing the sector into a major upward cycle. Domestic leading manufacturers are expected to benefit deeply. Requirements for CCL in high-speed AI computing scenarios are increasing. The upgrade pace for high-speed CCL is accelerating (M8 mainstream material in 2026, M9 entering mass production; M9 becoming mainstream in 2027). The market size is growing rapidly. According to Taiwan Union Technology Corporation (TUC), the high-speed CCL market size is expected to be about $8 billion in 2026, with a demand CAGR of 40% from 2024 to 2027. Companies like TUC, Taiwan Yoonify, ITEQ, South Korea's Doosan, and Japan's Panasonic are all optimistic about the growth trend of high-speed materials driven by demand for various servers and switches in 2026-2027, and are continuously expanding M7-M9 grade CCL capacity. Currently, the high-speed CCL market share is mainly concentrated among Taiwanese, Japanese, and Korean manufacturers. Domestic manufacturers are entering a volume ramp-up and catch-up period this year and next. According to the firm's tracking, domestic CCL leader Shengyi Technology's S8/S9 materials have already secured large-volume orders in Nvidia's computing power supply chain, with supply share expected to increase further this year and next. Nan Ya New Material has achieved breakthrough volume in the high-speed material system within the domestic computing power chain this year and is expected to break into overseas computing power customers next year. Regarding the cycle, "price increases" will be the main theme for the CCL industry in 2025-2026. Continued price increases for upstream raw materials like copper and glass cloth, coupled with AI demand crowding out capacity and low inventory in the PCB segment, are expected to drive the overall CCL industry into a medium-to-long-term price increase channel.

Upstream main materials: AI demand is driving accelerated upgrades for high-end products, and supply-demand gap segments are becoming increasingly tight. The main upstream materials for CCL are copper foil, resin, and glass fiber cloth, accounting for approximately 42%, 26%, and 20% of the cost structure, respectively. As CCL upgrades from M7 to M8 and M9 grades, all three main upstream materials require significant performance improvements, leading to volume growth for high-end varieties. 1) Glass fiber cloth: Generation 1 and Generation 2 cloths are currently the mainstream high-end materials; Q-cloth is imminent for volume production, facing severe shortages. 2) Electronic copper foil: AI demand is driving accelerated upgrades for HVLP copper foil, with demand growing rapidly. 3) Resin: Impending upgrades to M8+ and M9 grade CCL are expected to drive volume demand for hydrocarbon resin.

Equipment: Accelerated expansion and upgrade of AI PCBs are driving strong demand for high-end equipment, promoting rapid market share gains for domestic manufacturers. This round of expansion is primarily driven by the specification upgrades of AI computing power PCBs/CCLs. Domestic equipment manufacturers are expected to benefit from the PCB expansion cycle coupled with the development opportunity of accelerated domestic substitution for high-end equipment. Focus on drilling and drill bit segments. In the drilling field, upgrades for advanced HDI and high-layer-count boards compared to standard boards involve upgrades in both mechanical and laser drilling equipment. Han's CNC is well-positioned in mechanical drilling, while ultrafast laser technology is achieving a 0-1 breakthrough, applicable to new technologies like SLP/CoWoP and new material upgrades like M9/PTFE. The increasing proportion of AI is driving strong order demand and significantly improving profitability. Han's Laser has reached an inflection point, with Apple business recovering growth in 2025 and numerous pre-research projects for 2026-2027, while also potentially sharing in the earnings elasticity of its subsidiary Han's CNC. In the drill bit segment, PCB drill bits are experiencing both volume and price increases. D-Tautech benefits from this trend, with its M9 new material drill bit project progressing smoothly, capacity accelerating expansion, and possessing self-supply capability for equipment.