MediaTek Inc. shares are poised for their best quarter on record, as investors bet a shift into artificial intelligence chips can help it shed the overhang of its struggling older-tech business.
Optimism is growing that the Taiwanese company’s deal to design application-specific integrated circuits with Alphabet Inc.’s Google points to a new growth engine. That’s driven its stock up 187% since the end of March, making it one of Asia’s top perfomers and adding more than $140 billion in market value.
The reappraisal highlights how ASICs are winning more attention as AI focuses on everyday tasks, offering major tech firms lower costs and greater customization. MediaTek’s deal with Google is spurring expectations it can win more business and steal away share from Broadcom Inc., the top player in this niche.
“MediaTek has shown much progress in its data-center ASIC business, leading to a change in perception from investors,” said Kevin Net, head of Asian equities at Financière de l’Echiquier. “Up until early this year, it was still mostly seen as a smartphone play.”
Handset chips still account for around half of MediaTek’s sales, meaning it’s vulnerable to sluggishness in the smartphone market, as indicated in its latest forecast. Bulls are looking beyond this as the company strives to grow its AI operations.
Its inroad is through ASICs. These chips are cheaper than the graphics processing units made by Nvidia Corp. that are used for AI training. Nvidia Chief Executive Officer Jensen Huang himself spotlighted ASICs last week, predicting designer Marvell Technology Inc. will reach a $1 trillion valuation on booming business.
The market has ramped up bets on success for MediaTek, whose shares are outpacing those of Broadcom as well as Taiwanese AI ASIC rivals Alchip Technologies Ltd. and Global Unichip Corp. in the past few months.
MediaTek is on a hiring spree to boost its AI business, which it expects to generate revenue of about $2 billion this year and more in 2027. In May, it projected it can secure as much as 15% of what it sees as an $80 billion market next year.
Kevin Wang, an analyst at Mizuho Securities Asia Ltd., thinks that may be conservative.
“We forecast MediaTek to achieve the high-end of its market share target or even beat it in 2027,” Wang said. Google is the leading hyperscaler utilizing AI ASICs, and that “indicates significant market share gain for MediaTek,” which is in talks with other potential clients as well, he noted.
Flexibility may help the company win business. MediaTek is a latecomer to the field, but is “generally more accommodating” to customer requests, according to Phelix Lee, an analyst at an analyst at Morningstar Inc.
MediaTek’s surge to a record high share price in late May has driven its valuations to all-time highs as well. It’s trading at 47 times forward earnings estimates, compared with 24 times for Broadcom and 21 times for tech heavyweight Taiwan Semiconductor Manufacturing Co.
Still, consensus estimated earnings per share over the next year for the company has risen more than 30% since early February. And analyst ratings are overwhelmingly positive on MediaTek, with 29 buys versus 2 holds and no sells.
“Incremental AI business” including chips for wearable devices such as glasses could drive earnings growth for the company of more than 60% per year over 2027 and 2028, said Mizuho’s Wang. The stock “is not expensive if we see this upside potential.”
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