Will AI contribute to FPT's further success?

Riding the AI Wave

FPT shares played a major role in driving the VN-Index close to the 1,300-point threshold during the first trading week of December. The stock rose 82% in just one year to VND 149,500 per share, the highest level in 18 years of listing. FPT now has a market valuation of around VND 220 trillion ($8.7 billion), making it the biggest private company listed on the Vietnamese stock exchange.

The founder and CEO of Nvidia's second trip to Vietnam coincided with the robust performance of FPT shares. With a $200 million investment, Nvidia, a leading semiconductor company in the world, has teamed up with FPT to launch the first AI Factory, which will include a supercomputer system driven by the GPU H100. The two sides opened a second AI plant in Japan in November 2024, with plans to open more in the future.

As Vietnam's leading IT enterprise, FPT is expected to benefit significantly from the collaboration between the Vietnamese government and Nvidia to establish the AI Research and Development Center (VRDC) and an AI Data Center in Vietnam. These initiatives align with FPT's ambitions in AI, further emphasized by the launch of AI Factory and its subsequent plans.

Three Growth Pillars

The leadership of FPT has released its business plans for late 2024 and 2025, emphasizing that higher IT spending during Donald Trump's second term is expected to fuel a robust rebound in the U.S. market in 2025.

FPT signed a new three-year, $225 million digital transformation (DX) contract with an existing U.S. client in Q3 2024. FPT's strong capabilities and persistent dedication to customer success made this possible. Given that FPT has been securing higher-value contracts more frequently in recent years, the contract is anticipated to boost revenue growth in Q4 2024 and strengthen the company's global market share.

Additionally, it is anticipated that U.S. IT investment would increase, which is crucial for FPT's IT segment, which is highly dependent on this market in addition to its dominance in Japan. FPT recorded pre-tax earnings of VND 8,111 billion and revenues of VND 45,241 billion for the first nine months of 2024, which were 19.3% and 19.8% higher, respectively, than the same period the year before. With 62% of revenues and 47% of pre-tax profits, or VND 27,964 billion and VND 3,812 billion, respectively—an astounding 24.2% and 21.9% rise year over year—the technology industry continues to be the key driver. Despite spending restrictions and lower investments in technology and digital transformation, these numbers demonstrate the IT segment's steady yearly growth of more than 20% in both sales and profit during 2023–2024.

Beyond IT, FPT plans to launch GPU rental services (GPUaaS) in both Japan and Vietnam, with an anticipated EBITDA margin of around 50% by 2025. Additionally, the telecommunications segment is gaining traction, with plans to expand pay-TV services and launch the D9 Data Center in 2025. In the first nine months of 2024, this segment reported revenues of VND 12,320 billion (up 9.2%) and pre-tax profits of VND 2,547 billion (up 14.9%). Challenges remain, particularly in human resources and technology investment, but fierce competition in retaining users amid a shift toward digital media continues to shape the market.

FPT saw some challenges in the field of education in 2024, since enrollment growth was only in the single digits. The business anticipates a rebound in 2025, though. With an annual growth rate of 16.2%, this segment generated over VND 5,000 billion in revenue. The partnership with Nvidia is anticipated to serve as a stimulant, propelling exponential expansion in this market by meeting the growing need for workforce training in chips and semiconductors. FPT hopes to cultivate AI talent by utilizing Nvidia's cutting-edge AI technologies, which might establish it as a leader in education within the next ten years.

According to SSI Research, FPT is poised to expand its market share internationally, particularly in IT, prompting an upward revision of its IT segment’s target P/E ratio to 30x (from 23x). Analysts have upgraded their recommendation for FPT shares from “Outperform” to “Buy,” with a 12-month target price of VND 186,300 per share, based on the SOTP valuation method.