Karrie International’s booming profit undermined by AI selloff

The maker of server casings and racks said its profit doubled in the first half of its current fiscal year, but its stock dropped anyway

Key Takeaways:

• Karrie International’s profit doubled in the first half of its fiscal year through September, as it benefited from booming sales of higher-margin AI-use products
• The maker of server casings and racks reported its revenue rose 45% in its fiscal quarter through Sept. 30, well ahead of its 7.4% growth the previous year

By Doug Young

Talk about bad timing. Usually an announcement saying your profit doubled in your latest reporting period should be good news, sparking a rally in your shares. But the opposite was true for Karrie International Holdings Ltd. (1050.HK), whose focus on server casings and racks makes it a player in the AI story, albeit at the low-tech end of the spectrum.

Karrie’s stock fell 2.4% on Thursday, the day after the announcement. But Thursday was also one of the bloodiest days for AI concept stocks in quite some time, with the Nasdaq Composite Index dropping 5.5% for the day – its worst single-day decline in more than a year. And Karrie rivals Chenbro Microm (8210.TW) and Asia Vital Components (3017.TW) fared even worse, down 6% and 9%, respectively.

The selloff continued on Friday, with Karrie’s stock down another 2.5 in morning trading. Even at its latest price of HK$1.58, the shares are more than double where they traded before a rally dating back to May 2025. That run-up is linked to Nvidia’s naming of Karrie as a qualified and recommended supplier of server chassis and rack components. While Karrie didn’t announce the Nvidia relationship until September last year, it’s quite likely that industry insiders knew of it in the months before that, sparking the rally.

Before the rally, Karrie was quite the traditional company with a very ho-hum growth story. The company was founded by Ho Cheuk Fai, who was just 12 when he started working as a factory apprentice in the 1950s, according to a 2017 profile in the Hong Kong Commercial Daily. He started his first business at age 17, before founding Karrie in 1980. Five years later, he was one of the earliest Hong Kong entrepreneurs to open a factory across the Mainland Chinese border in the city of Dongguan, now one of the biggest manufacturing hubs in Guangdong province.

Ho, now 80, made more recent company headlines in September when Karrie announced his retirement as CEO, adding he would remain as chairman. He handed over the reins to his son, Ho Wai Hon, who also uses the English name Brian, 36, in a typical case of family succession. The handover looked quite symbolic at the time, representing the company’s changeover from a traditional server rack maker to a maker of the same racks but at higher specifications required by AI.

While that’s a nice story, and the elder Ho is probably looking forward to some rest after working for so long, such handovers inevitably come with execution risk as a younger, less experienced generation takes over. Combined with all the recent uncertainties around AI and whether booming demand for related hardware is sustainable, Karrie – and its stock – could be in for some rough times ahead.

Accelerating growth

Karrie’s financial statements certainly didn’t hint at a major growth story when its stock rally began last year. The company’s revenue rose by a very modest 7.4% in its latest fiscal year through March 2026 to HK$3.47 billion ($442 million). That represented an actual slowdown from the previous year, when its revenue rose 10.6%.

The company’s biggest product segment for the year was server enclosures, whose revenue rose 7.1% year-on-year to HK$1.97 billion, accounting for 57% of revenue. That was followed by storage products, which rose 5.8% year-on-year to HK$1.27 billion to account for 37% of revenues; and electric vehicle (EV) charger enclosures, which rose 23% to HK$234 million, accounting for 7% of revenue.

The company’s profit was a bit better, rising 32.4% in its latest fiscal year to HK$271 million, hinting at changes taking place internally as its product mix shifted toward higher-end AI server racks that carry higher margins. Reflecting that, the company’s gross margin ticked up to 16% in the latest fiscal year from 15% the previous year.

Karrie has been updating investors on that shift throughout its current fiscal year with quarterly updates to show how AI demand is finally starting to jumpstart growth to justify its stock rally.

In the latest of those, it said its revenue for the three months to Sept. 30, its second fiscal quarter, rose 45% year-on-year – far faster than the 7.4% growth rate for all of its previous fiscal year. Revenue from its core server enclosures rose 48%, and the company pointed out that revenue from AI-use server enclosures grew to account for 34% of the segment’s total from 20% in the previous quarter.

Put differently, the company’s revenue from AI-use server enclosures rose 87% sequentially from its first fiscal quarter through June to the second quarter through September. It added the company is expanding its product layout to include more server rack products beyond its traditional server casings.

Karrie’s storage product revenue also rose 51% year-on-year in its fiscal second quarter, though the company didn’t specify if that was due to AI-related demand.

Against that backdrop, the doubling of the company’s profit in the first half of its current fiscal year doesn’t come as a huge surprise. It attributed the improvement to its ramp-up of AI-related products, as well as growing sales for its newer server racks and other “next-generation AI platforms,” which helped to boost its gross margins.

Karrie pointed out that it is also benefiting from growing economies of scale and improving operational efficiency at its newer production base in Thailand, which began commercial production in 2023.

Karrie’s stock peaked at about HK$3 in May this year, compared with about HK$0.70 before the AI rally. It’s lost about half of its value since then, bringing its trailing price-to-earnings (P/E) ratio down to a relatively reasonable looking 14. That’s behind the 17 for Chenbro Microm and the even more inflated 38 for Asia Vital Components. 

All that means the stock could be a decent value for anyone who believes the company can sustain its current strong double-digit revenue and profit growth over the next two or three years. But as the big Thursday selloff shows, investors are growing increasingly wary that the AI spending binge can be sustained, meaning Karrie’s stock could face more downward pressure if spending really starts to slow.

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