HYGON: Riding the AI Power Surge While Its Valuation Remains a Risk

HYGON Information Technology Co. Ltd. (股票代码: 603299.SS) has positioned itself as a key player in China’s burgeoning AI infrastructure sector. The company, whose shares closed at ¥246.84 on 28 October 2025, is operating within a market that has seen an unprecedented influx of capital into AI‑driven computing and data‑center equipment. Yet, amid the euphoria, several structural and valuation concerns merit scrutiny.

1. Industry Context: A Surge in AI‑Enabled Compute

On 30 October 2025, a report from stock.eastmoney.com highlighted that, out of 147 A‑share companies classified under the “AI computing”, “GPU”, “server”, “PCB”, and “optical module” sectors, 143 companies had released their third‑quarter results. Impressively, 118 companies achieved profitability in the first nine months, and 32 companies reported a tripling of profits relative to the same period a year earlier. This data underscores a robust, sector‑wide upward trajectory powered by two forces:

  1. Global AI boom – Worldwide demand for high‑performance computing is accelerating, especially in language models, computer vision, and autonomous systems.
  2. Domestic infrastructure push – China’s “算力基建” (compute infrastructure) initiative is allocating significant public and private investment to build data centers, GPU farms, and optical interconnects.

Within this context, HYGON’s focus on server and PCB manufacturing aligns with the “high‑growth” narrative. Its peer, Industrial Fuling (工業富聯), reported a modest 4 % YoY profit increase in the first three quarters, yet it remains the “profit king” of the sector due to sheer scale. HYGON’s market cap of ¥570.15 billion, however, places it far behind the giants, signaling a narrower margin for expansion without strategic partnerships or capital influx.

2. Valuation Woes: A Puzzling P/E Ratio

The company’s Price‑Earnings ratio sits at an alarming 228.75. When juxtaposed against the sector average of roughly 60–80, HYGON’s valuation is almost a three‑fold premium. Even in a hyper‑growth environment, such a multiple is difficult to justify without:

  • Substantial margin expansion: HYGON’s recent financials (not detailed in the input but implied by sector trends) would need to demonstrate a rapid shift from thin margins to a sustainable 15–20 % operating margin.
  • Clear differentiation: The company would have to prove technological superiority or a proprietary supply chain advantage over competitors such as TSMC’s PCB partners or the rising domestic PCB players.

Absent these catalysts, investors may face a classic “growth at a price” dilemma, where the hype could outpace fundamentals, leading to a potential correction.

3. Macro‑Financial Environment: Funding Flows Turned Negative

The same day’s market snapshot revealed that the electronic sector suffered a net outflow of ¥23.126 billion in primary fund capital, the largest among all industries. While the broader Shanghai Stock Exchange dipped 0.73 %, the electronic and communication sectors lagged behind the rallying steel and non‑ferrous metals. This negative flow suggests that institutional investors are increasingly cautious about the “high‑tech” bubble, preferring sectors with more predictable earnings.

For HYGON, this translates to a heightened sensitivity to capital costs. If the company must raise debt or equity to fuel expansion, the cost of capital will rise, eroding the already thin margins typical of PCB manufacturing.

4. Strategic Implications

  • Supply Chain Leverage: HYGON could strengthen its position by forging exclusive contracts with leading server OEMs or data‑center operators. A lock‑in agreement would guarantee a steady revenue stream, mitigating volatility.
  • Diversification into Optical Modules: Given the report’s emphasis on optical module growth, HYGON might consider expanding into this sub‑segment, which typically commands higher margins and is less commoditized than PCB.
  • Cost Discipline: With a high P/E ratio, the company must focus on cost optimisation—automation, yield improvement, and efficient inventory management—to improve profitability without diluting equity.

5. Bottom Line

HYGON sits at the intersection of a booming AI computing demand and a cautionary valuation landscape. Its alignment with the AI infrastructure trend offers undeniable upside, but the company’s high P/E ratio, coupled with negative sector‑wide capital inflows, signals a potential risk of overvaluation. Investors and stakeholders must weigh the company’s growth trajectory against the reality of its current financial metrics and the broader market sentiment. In a market where “big data” is not the only currency, strategic execution and prudent valuation will determine whether HYGON can translate hype into sustainable value.