{"text":[[{"start":9.443,"text":"They were briefly investor darlings, banking on their status as makers of a critical component for the AI infrastructure taking the world by storm. But these days, shares of printed circuit board (PCB) makers, which exploded last year on surging demand, are rapidly falling back to earth. The pullback dates back to the last few months, with many shares now trading at half or less of their recent peaks."}],[{"start":34.16,"text":"One of many victims of the big correction is Delton Technology (Guangzhou) Inc. (1989.HK; 001389.SZ), whose honeymoon was remarkably brief after its Hong Kong IPO in March. The stock charged out of the gate, tripling in less than two months on the AI euphoria. But shares have moved steadily south since then, now down more than 60% from their peak during the speculative investor buying frenzy."}],[{"start":60.96,"text":"Delton’s latest results forecast, published earlier this month, show both why investors like the company, revealing strong profit growth in the third quarter and first nine months of the year. But they also show how investor euphoria may have pumped up the shares just a little too much too quickly."}],[{"start":78.266,"text":"The company said it expects to report a profit of 1.45 billion yuan ($217 million) to 1.5 billion yuan for the first nine months of this year, up 100.3% to 107.2% from the year-ago period. Excluding non-recurring gains and losses, the profit will range between 1.42 billion yuan and 1.47 billion yuan, up 101.8% to 108.9% year-on-year."}],[{"start":106.18,"text":"Delton attributed the big increase to surging demand for computing power, which created a parallel boom for its products. It added that its factory in Thailand has also completed its audit and certification process for the company’s core customers, further driving growth. It also pointed out its Delton Precision Circuits (Huangshi) Inc. subsidiary has been working hard to improve the company’s profitability by implementing cost-control measures, adjusting its product structure, and increasing production and efficiency."}],[{"start":137.45,"text":"Despite the otherwise rosy outlook, investors reacted to the report by bidding down Delton’s stock after the announcement. The shares have continued to fall since then, and at Friday’s close of HK$83.30 are fast approaching their listing price of HK$71.88."}],[{"start":137.95,"text":"Sequential decline"}],[{"start":157.68,"text":"Delton’s announcement was just a preliminary forecast, and it has yet to release a detailed third-quarter report. But an analysis using previously published data shows the company's profits are falling."}],[{"start":169.238,"text":"The company logged a first-quarter profit of 393 million yuan, up 63.3% year-on-year. For the first half of the year its profit reached 956 million yuan, up an even stronger 94%, including sequential profit growth to 563 million yuan in the second quarter. The latest forecast means the company now expects to report a third-quarter profit of between 494 million yuan and 544 million yuan."}],[{"start":198.888,"text":"Put differently, the company’s data shows its profit peaked in the second quarter and began to fall sequentially in the latest period. While such a slowdown was probably inevitable, it served as a reality check for investor who hoped that AI could supercharge PCB and other AI infrastructure stocks indefinitely."}],[{"start":199.388,"text":"Profit-taking"}],[{"start":217.68,"text":"Valuations for AI-related companies were quite high in the middle of this year, with price-to-earnings (P/E) ratios often reaching 100 times or sometimes even more. But skepticism has become the order of the day more recently. Companies still losing money or with sky-high valuations have led many to ask whether growth will be fast enough to justify such valuations, and whether future profits can support such lofty prices."}],[{"start":244.102,"text":"Worried that their shares were becoming overpriced, some of the companies even warned investors to exercise prudence and temper their optimism. One, memory chip maker GigaDevice (3986.HK), pointed out that prices for its products are already at historic highs, and more sharp increases over the indefinite future are unsustainable."}],[{"start":264.48,"text":"Formerly enthusiastic investors have also sobered up as they realized some stocks may be overvalued, leading some to reduce their holdings by cashing out and locking in gains while they can, further adding to the slide."}],[{"start":264.98,"text":"Return to rationality"}],[{"start":281.12,"text":"The reality is that demand for PCBs and other AI infrastructure is growing, but perhaps not as fast as many might like."}],[{"start":286.783,"text":"According to market research in Delton’s prospectus this year, demand for 14-layer or higher multi-layer PCBs (MLPCB) used for AI applications has been growing rapidly over the last few years. Sales from 2020 to 2024 increased from $3.9 billion to $5.6 billion, representing 9.5% annual growth. The market is expected to reach $9.7 billion in 2029, equating to 11.6% annual growth between 2024 and 2029."}],[{"start":318.673,"text":"While such growth looks solid, it’s still well behind the meteoric stock gains in just a few months, making those gains look like a bubble. Accordingly, the big recent declines look like a much-needed and justified correction."}],[{"start":331.944,"text":"The big question now is whether the correction has run its course, or if more declines lie ahead before AI stocks find their new footing. After all, if such stocks can rise to such meteoric heights so quickly, they could also fall to irrational lows if bearish sentiment becomes overblown."}],[{"start":349.11,"text":"Following the latest selloff, Delton’s current P/E ratio stands at just 22 times. Investment banks CLSA, Citigroup, and Jefferies expect the company's profit this year to range from 2.01 billion yuan to 2.4 billion yuan, while they estimate 2027 profits of 3.35 billion yuan and 4.58 billion yuan."}],[{"start":371.386,"text":"That implies a P/E ratio of 14 times to 20 times, based on this year’s expected profit, and just 9 times to 12 times next year. Such levels are hardly high for this type of fast-growth company, making current share prices start to look attractive. Of course, that thesis only holds if these companies can perform in line with investment bank estimates. Any major deviation from that, and all bets could be off."}],[{"start":402.97,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1792455258_3629.mp3"}