The market is about right about the recovery. Higher factory output and AI power sales should lift earnings, but acquisition financing limits the benefit. My twelve-month target is $87.61, consistent with market-like returns rather than a compelling buying opportunity.
Key points
- 45% gross margin in FY28 is my standalone forecast as factories fill.
- $250 million annual net interest in FY28 tempers the acquisition benefit.
- $87.61 per share by October 2027 supports a hold, not a bearish bet.
The call
The price requires recovery, not perfection. At my valuation multiple, the quote requires FY28 earnings of $4.18 per share. Holding my sales and acquisition assumptions constant, that means a standalone gross margin, profit after production costs, of 42.5%. Investors are paying for both a manufacturing rebound and AI power growth.
Factory recovery can restore profit on each dollar of sales- Reported adjusted gross margin
- Our standalone forecast
Adjusted gross margin (%); SEC Analyst Day, Sep. 16, 2026. E = our estimates; employee stock pay retained.
I expect slightly better recovery, but not exceptional returns. My FY28 standalone sales forecast includes $1.35 billion from AI data centers, with operating expenses of $1.40 billion. Fuller factories support margins; acquisition borrowing restrains earnings. My sell-heavy record argues against dismissing this recovery on valuation alone.
Valuation
| Our estimate or assumption | Figure |
|---|
| FY28 standalone revenue | $8.0 billion |
| FY28 standalone gross margin | 45% |
| FY28 combined pretax profit | $2.17 billion |
| FY28 adjusted earnings per share | $4.61 |
| October 2027 earnings multiple | 19 times |
| Twelve-month target | $87.61 |
Profit assumes a mid-2027 closing, includes $120 million of annual savings and $250 million of net interest, and retains employee stock-pay costs. A 15% tax rate and 400 million diluted shares complete the calculation. The multiple includes a three-turn AI premium worth about $14 per share over my conventional-cycle benchmark; margin sensitivity leaves insufficient upside for a buy.
The factory margin decides the twelve-month outcomeOur FY28 margin scenarios, October 8, 2026; other assumptions unchanged, including 19 times earnings.
Risks
- Automotive weakness or cheaper competing chips could interrupt recovery; watch distributor inventory and order cancellations.
- Acquisition costs could absorb more cash and restrict repurchases; watch the closing funding schedule and actual borrowing rates.
- AI demand could exceed my forecast and sustain a richer multiple; watch disclosed data-center sales, not the broader “other” category.
What would change my mind
Two consecutive quarters above 45% standalone adjusted gross margin, with continuing sales growth and controlled acquisition borrowing, would justify a higher target.
