Maintain Buy: 2027F constrained by capacity; 2028F benefits from Trainium4 content upgrade

Overview

Nomura maintained its Buy rating following Alchip Technologies' earnings call. Driven by Trainium3 mass production, 2Q26 revenue rose 83% quarter on quarter; although a higher production-revenue mix caused gross margin to decline, management remained positive on future margins, a second major cloud-service customer, and N2 project opportunities.

Core views

The core thesis is that near-term capacity constraints suppress 2027F earnings expectations, while the medium-term project pipeline and Trainium4's upgraded chip content support 2028F growth. Nomura believes advanced-node capacity and advanced-packaging supply, including WoS, are tight, posing particular risk to ASIC vendors that applied late for 2027 capacity. Upside exists if customers secure greater capacity allocations or adopt alternative manufacturing and packaging routes.

Analysis framework

Combining 2Q26 results and management guidance, project progress, and assessments of advanced-node and packaging supply, Nomura revised its 2026-2028F earnings forecasts and determined its target price using a 2027F P/E valuation.

Methodology notes

• Valuation MethodPrice-to-Earnings Valuation

  Calculate the target price by multiplying 2027F EPS by the target P/E multiple

  The TWD5,300 target price is based on 35x 2027F EPS; this multiple is above the five-year average of 30x and sits in the mid-to-high end of the company's historical trading range.

• Fundamental AnalysisEarnings Forecast Revision

  Adjust earnings forecasts based on capacity, project progress, and margin assumptions

  Nomura lowered 2027F EPS by 12% and noted that its 2027F EPS is 18% below consensus, mainly reflecting capacity concerns; its 2028F EPS is broadly in line with consensus.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Alchip Technologies (3661.TW)

  Core coverage name

  Strengths

  Has AI/HPC ASIC design-service experience, growing Trainium project volumes, an N2 project in the final implementation stage, and the potential to win a second major cloud-service customer; the Trainium4 content upgrade provides a growth driver for 2028F.

  Weaknesses

  Revenue and margins are sensitive to the production-project mix and advanced-node supply; 2027F earnings forecasts are below market consensus.

  Comparison

  Nomura applies a 35x 2027F P/E valuation, above the five-year average of 30x; its 2028F EPS forecast is broadly in line with consensus.

  Risks

  Customers shifting to in-house design, insufficient manufacturing and advanced-packaging capacity, intensifying ASIC industry competition, and uncertainty around commercial terms and profit-sharing arrangements.

Key data

• 2Q26 quarter-on-quarter revenue growth83%Driven by the Trainium3 volume ramp beginning in 2Q26.
• 2Q26 gross margin35%Below 1Q's 50%, but above Nomura's 34% and the market's 30% expectation.
• 2026 blended gross margin guidanceLow-to-mid-20% rangeManagement expects blended gross margin of just above 20% in 3Q and 4Q.
• 2027F EPS revision-12%Reflects tight capacity for advanced nodes and advanced packaging.
• Target priceTWD5,300Based on 35x 2027F EPS.
• Current share priceTWD4,210Price date: 2026-08-14.
• Implied upside25.9%Relative to the current share price stated in the report.

Impact & implications

For investors, the key variable for 2027F shifts from demand to supply: the extent to which customers can secure advanced-node and packaging capacity such as WoS will determine the degree of earnings realization. If supply bottlenecks ease, or if the new major cloud-service customer and N2 project progress smoothly, there is room for upward revisions to valuation and earnings; if capacity remains insufficient, near-term earnings elasticity may be constrained.

Risks

• Customers increase their proportion of in-house design, reducing demand for outsourced ASIC design services.
• Insufficient advanced-node manufacturing capacity and advanced-packaging capacity, including WoS.
• Intensifying competition in the ASIC design-services market.
• Uncertainty regarding customer capacity allocations, alternative manufacturing or packaging routes, and commercial profit-sharing terms.
• Actual earnings or project mass-production progress falls below expectations.

What to watch

• Execution progress for the N2 project's year-end tape-out and end-2027 mass-production target.
• Customers' ability to secure advanced-node and advanced-packaging capacity for 2027-2028.
• The impact of Trainium3 mass production on revenue and gross margin, and whether 3Q and 4Q gross margins meet guidance of just above 20%.
• Trainium4 design content, number of logic dies, and the 2028F mass-production schedule.
• Progress in securing a second major cloud-service customer and the CPU project mentioned for the first time.
• Growth performance of the automotive ADAS business as the second-largest revenue contributor.