Maintain Buy: 2027 Capacity Constraints Lower Expectations, While 2028 Content Value Expansion Is Expected

Overview

Following the earnings call, Nomura maintains its Buy rating on Alchip Technologies. The report believes Trainium 3 volume ramp is driving strong near-term revenue growth, while N2 project progress, the opportunity to win a second major cloud-services customer, and automotive ADAS performance support medium- to long-term growth. The key constraint is tight advanced-process and packaging capacity in 2027, which may limit customer shipments and the realization of company earnings.

Core views

In the short term, a higher share of mass-production revenue weighs on gross margin, although management's outlook for subsequent blended gross margin is relatively positive. In the medium term, supply-chain capacity in 2027—particularly for advanced nodes and WoS-related capacity—is the main bottleneck to earnings upside, prompting Nomura to lower its 2027 forecast. In the long term, Trainium 4 may significantly raise chip content value, and ASICs offer an approximately 3–4x total-cost-of-ownership advantage over GPUs, positioning Alchip to benefit from cloud-service providers' adoption of custom ASICs.

Analysis framework

The analysis is based on earnings performance, management guidance, project progress, advanced-process and packaging supply-demand conditions, EPS forecast revisions, and relative valuation. The target price is derived using a multiple of forecast 2027 EPS, with relative performance measured against the TAIEX.

Methodology notes

• Relative ValuationPrice-to-Earnings Valuation

  The target price is estimated by multiplying forecast 2027 EPS by the target P/E multiple.

  The TWD 5,300 target price is based on 35x forecast 2027 P/E; this multiple is above the approximately 30x average of the past five years and in the upper-middle range of its historical trading band.

• Fundamental AnalysisProject and Capacity Scenario Analysis

  Assesses the impact of project production-ramp timing, customer demand, and supply-chain capacity on revenue, gross margin, and earnings forecasts.

  The report incorporates Trainium project progress, N2 tape-out and mass-production timing, and tight advanced-node and packaging capacity into its earnings forecast assessment.

Asset mapping & comparison

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

• Alchip Technologies (3661.TW)

  Core Covered Company

  Strengths

  Has AI/HPC design-services experience, with Trainium project mass production driving growth; the N2 project is progressing, automotive ADAS is the second-largest revenue contributor, and management has high confidence in securing a second major cloud-services customer.

  Weaknesses

  A higher share of mass-production revenue depresses near-term gross margin; revenue is highly concentrated in HPC/AI applications.

  Comparison

  The report believes ASICs have an approximately 3–4x total-cost-of-ownership advantage over GPUs and that the company's current valuation is attractive; the target valuation uses 35x forecast 2027 P/E, versus an approximately 30x average over the past five years.

  Risks

  Insufficient advanced-process and packaging capacity, customer in-house design trends, intensifying ASIC industry competition, and uncertainty over customer commercial terms and profit sharing.

Key data

• 2Q26 Revenue QoQ Growth83%Driven by the production ramp of Trainium 3 from 2Q26.
• 2Q26 Gross Margin35%Below 50% in 1Q26, but above Nomura's 34% and the market's 30% expectations.
• 2026 Blended Gross Margin GuidanceLow-to-mid-20%Management expects blended gross margin of around 20% in 3Q/4Q.
• 2027 EPS Forecast Revision-12%Mainly reflects constraints in advanced-node and packaging capacity.
• 2027 EPS Versus Market Consensus18% belowNomura views capacity issues as the main source of the difference.
• Target PriceTWD 5,300Based on 35x forecast 2027 P/E; previously TWD 6,000.
• Implied Upside25.9%Relative to the TWD 4,210 reference share price on 2026-08-14.

Impact & implications

If customers secure more advanced-process and advanced-packaging capacity, or diversify supply through alternative manufacturing and packaging routes, 2027 earnings could have upside potential; however, commercial terms and profit sharing remain uncertain. If the N2 project enters mass production as planned by end-2027 and Trainium 4's multi-logic-chip architecture is realized, higher per-project content value in 2028 could offset part of the near-term capacity pressure.

Risks

• Customers increasingly internalize chip design.
• Insufficient advanced-manufacturing and advanced-packaging capacity, particularly with potential impact on 2027 project mass production and shipments.
• Intensifying competition in the ASIC design-services market.
• Margin pressure from a higher share of mass-production revenue.
• Commercial terms or profit-sharing arrangements for customer capacity expansion may fall short of expectations.

What to watch

• The scale of subsequent Trainium 3 mass production and gross-margin trends.
• Whether the N2 project's year-end tape-out and end-2027 mass-production targets are achieved on schedule.
• Progress by leading customers in securing advanced-node, WoS, and other advanced-packaging capacity.
• Progress in securing a second major cloud-services/hyperscale customer.
• Whether Trainium 4's chip count and higher content value in 2028 materialize.
• The continued revenue contribution from automotive ADAS and progress toward the long-term operating-margin target of the high teens.