Foxconn's AI Server Dominance vs. Tariff Headwinds: A Strategic Buy?

In a world where artificial intelligence is rewriting the rules of technology, Foxconn (2317.TW) stands at the crossroads of opportunity and risk. The company’s pivot to AI server manufacturing—driven by its partnership with Nvidia—has positioned it as a linchpin of the global AI infrastructure boom. Yet, geopolitical storms, namely U.S. tariffs on Chinese and Vietnamese goods, threaten to derail this trajectory. For investors with a 12–18 month horizon, the question is clear: Does Foxconn’s AI dominance outweigh the risks of trade wars, or is this stock a minefield? The answer hinges on three critical factors: structural AI demand, tariff exposure mitigation, and strategic manufacturing shifts.

The AI Server Tailwind: A 50% Revenue Boost by 2025

Foxconn’s AI server business is no longer a side hustle—it’s the engine of its future. In 2024, AI servers accounted for 32% of total sales, with revenue doubling year-over-year. By 2025, management aims for AI servers to comprise over 50% of total server revenue, with annual AI server sales projected to exceed NT$1 trillion ($30 billion). This growth is underpinned by Nvidia’s Blackwell superchip rollout, where Foxconn is the sole assembler for the GB200 server variant. These servers power everything from OpenAI’s Stargate initiative to enterprise-level generative AI models, with each chip priced at $30,000–$40,000.

The demand is structural: Cloud giants like Amazon, Microsoft, and Google are racing to expand AI data centers, while governments worldwide invest in AI-driven infrastructure. Foxconn’s lead in this space is bolstered by its $900 million Mexico manufacturing hub, which began production in early 2025. This plant, alongside a Chihuahua expansion, is designed to meet U.S. demand while avoiding tariffs—a critical advantage.

The Tariff Threat: A Sword of Damocles?

Despite its momentum, Foxconn faces a clear and present danger: U.S. tariffs on Chinese and Vietnamese imports. In 2025, the U.S. imposed a 54% tariff on Chinese-made goods and a 46% levy on Vietnamese components, directly targeting Foxconn’s traditional manufacturing hubs. These tariffs could erode margins on non-AI products like consumer electronics, which still account for 46% of revenue.

The Mexico strategy is Foxconn’s lifeline here. By shifting production to Mexico—a tariff-free zone under USMCA—Foxconn avoids levies on exports to the U.S. 60% of Nvidia’s U.S.-destined AI servers now originate from Mexico, and this share will grow as the Guadalajara superchip plant scales. However, risks remain:
- Supply Chain Complexity: Mexico’s workforce and logistics must handle Foxconn’s ambitious production targets.
- Competitor Moves: TSMC’s U.S. fabs and Intel’s AI chip push could siphon demand.
- Geopolitical Volatility: The U.S. may expand tariffs to target Mexico if trade tensions escalate.

Strategic Moves to Mitigate Exposure

Foxconn isn’t passively waiting for tariffs to subside. Its “China Plus One” strategy includes three critical pivots:
1. U.S.-Mexico Manufacturing Shift:
- The Mexico plant’s output for Nvidia’s GB200 servers is now tariff-advantaged, ensuring cost parity with U.S. rivals.
- Foxconn is also exploring a Texas-based joint venture with Apple to produce AI servers for Apple’s own AI initiatives, leveraging U.S. subsidies under the CHIPS Act.

1. Diversification Beyond Nvidia:

2. Foxconn’s partnership with Apple extends beyond iPhones to AI hardware. Apple’s rumored AI chips (e.g., “Apple Duet”) could provide a second revenue pillar.

3. Cost Control:

4. Foxconn’s gross margin, which dipped to 6.15% in late 2024, is projected to rebound to 7.1% by 2028 as AI server volumes scale.

These moves are already paying off. In Q1 2025, AI server revenue doubled year-over-year, driving a 24.2% surge in total revenue to NT$1.64 trillion.

The Investment Case: Buy Now, or Wait for the Dust to Settle?

Foxconn’s stock trades at 10.5x 2025 earnings estimates, a discount to peers like Hon Hai (its parent) and Taiwan Semiconductor. While tariff risks and margin pressures are valid concerns, the AI tailwind is too strong to ignore. Here’s why investors should act:

1. AI Adoption Outpacing Trade Wars:

2. The AI server market is projected to grow 24.5% in 2025, even after trimming estimates for trade-related delays. Foxconn’s 40%+ market share target in this segment is achievable if it maintains its partnership with Nvidia.

3. Mexico’s Strategic Sweet Spot:

4. The U.S.-Mexico-Canada Agreement (USMCA) shields Mexico-made servers from tariffs, and the Guadalajara plant’s capacity (20,000 servers annually) ensures scalability.

5. Near-Term Catalysts:

6. Foxconn’s Q2 2025 earnings will likely reflect strong AI server shipments, with “high double-digit growth” expected.

7. Apple’s AI Play:

8. Apple’s shift to self-designed AI chips creates a $5 billion+ annual opportunity for Foxconn as a supplier—a potential upside catalyst.

Conclusion: A High-Reward, 18-Month Bet

Foxconn’s AI server dominance is undeniable, but the path to profit remains rocky. Investors must weigh the 50%+ AI revenue growth against tariff-driven margin pressures and supply chain risks. For those with a 12–18 month horizon, the calculus tilts toward buying now.

• Entry Point: Target a dip below NT$40 (current price: NT$45).
• Upside: A 50% rally to NT$60 by mid-2026 if AI adoption accelerates.
• Risks: Delayed server projects (e.g., Microsoft’s data center cuts) or a tariff expansion to Mexico.

Foxconn isn’t just an AI play—it’s a geopolitical hedge. In a world where AI infrastructure is the new oil, the company’s manufacturing agility and partnerships with tech titans make it a must-own stock for the next phase of the AI revolution.