MediaTek's AI ASIC estimate upgrade creates valuation upside, but limited visibility keeps the rating at Hold

Overview

This report presents HSBC's earnings preview and valuation update for MediaTek (2454.TW). HSBC believes the company's near-term 2Q26 performance should be broadly in line with expectations, while 3Q26 may offset weak smartphone demand through price increases. Over the medium term, AI ASIC opportunities, particularly those related to Google TPU, have strengthened significantly, and an upward revision to CoWoS capacity allocation has driven substantial increases in 2027 revenue and EPS estimates. However, HSBC maintains its Hold rating because the current share price already partially reflects the 2027 CoWoS upside, while visibility remains insufficient for 2028 ASIC revenue, incremental Intel EMIB capacity, HBM procurement, and the increase in Humufish ASPs.

Core views

The core view is that “the opportunity is attractive but uncertainty remains high.” HSBC expects MediaTek's 2026 AI ASIC revenue to reach approximately USD 2.3bn, with volume ramping up from 4Q26. The 2027 AI ASIC revenue forecast is raised to USD 16.2bn, above company guidance and consensus expectations but below some of the most optimistic sell-side estimates. For 2028, HSBC forecasts AI ASIC revenue of USD 35.1bn, below the consensus estimate of USD 36.8bn and well below the most optimistic forecast of USD 51.1bn, indicating widening market divergence. From a valuation perspective, HSBC believes the traditional consolidated PE approach is no longer appropriate and instead applies SOTP PE valuations separately to the AI ASIC and smartphone businesses.

Analysis framework

The report reassesses MediaTek's earnings over the next three years and its target price by combining a 2Q26 earnings preview, 3Q26 pricing and gross-margin assumptions, CoWoS capacity allocation, AI ASIC shipment and ASP assumptions, comparisons with market consensus, and sum-of-the-parts valuation. The analytical focus shifts from the historical smartphone-chip driver toward incremental contributions from AI ASICs.

Methodology notes

• Valuation methodsSOTP PE

  Sum-of-the-parts price-to-earnings valuation

  HSBC values the AI ASIC and smartphone businesses separately, applying a 43x PE to the AI ASIC business and a 14x PE to the smartphone business to reflect differences in growth and risk.

• forecastCoWoS capacity and ASP model

  AI ASIC revenue estimation based on advanced packaging capacity and per-chip ASP

  The report assumes that CoWoS allocation will increase to 180k wafers in 2027, with net output of 20 chips per wafer and an ASP of USD 4,500 per chip; in 2028, CoWoS capacity will rise to 300k wafers, while Humufish will drive blended ASP up to USD 6,500.

Asset mapping & comparison

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

• 2454.TW

  Stock of the company covered in the report

  Strengths

  Significantly improved AI ASIC revenue potential, upwardly revised CoWoS capacity allocation, and substantial increase in the 2027 EPS forecast.

  Weaknesses

  Traditional smartphone demand remains weak, near-term revenue growth momentum is limited, and the current share price already partially reflects next year's CoWoS upside.

  Comparison

  HSBC's 2027 AI ASIC revenue forecast of USD 16.2bn is above the USD 14.0bn consensus estimate but below forecasts of more than USD 20.0bn from some of the most optimistic sell-side analysts; its 2028 forecast of USD 35.1bn is below the USD 36.8bn consensus estimate.

  Risks

  Insufficient visibility into 2028 ASIC revenue, tight back-end advanced packaging capacity, uncertainty regarding the Intel EMIB ramp-up, and uncertainty over the extent of the Google TPU ASP increase.

Key data

• RatingHoldHSBC maintains its Hold rating.
• Target priceTWD 4,250.00The previous target price was TWD 2,605.00.
• Share priceTWD 3,680.00Closing price as of July 27, 2026.
• Implied upside+15.5%Calculated based on the target price and share price.
• 2Q26 sales forecastTWD 152bnUp 2% quarter on quarter, above the TWD 140.2-149.2bn guidance range.
• 2Q26 gross-margin forecast46.0%Close to company guidance and the 46.1% consensus estimate.
• 3Q26 gross-margin forecast46.6%Driven by September price increases, slightly above the 46.2% consensus estimate.
• 2026e AI ASIC revenuecUSD 2.3bnVolume is expected to ramp up from 4Q26.
• 2027e AI ASIC revenueUSD 16.2bnRaised from USD 9.2bn, above the USD 14.0bn consensus estimate.
• 2028e AI ASIC revenueUSD 35.1bnBelow the USD 36.8bn consensus estimate and the most optimistic sell-side forecast of USD 51.1bn.
• CoWoS capacity assumptions2026e 25k, 2027e 180k, 2028e 300k wafersUp 620% year on year in 2027 and 67% year on year in 2028.
• EPS forecast revisions2026e +6%, 2027e +42%Mainly reflects higher ASIC revenue assumptions.

Impact & implications

For investors, MediaTek's investment thesis is shifting from a smartphone-cycle stock toward an AI ASIC growth stock, but the current valuation already largely reflects the 2027 increase in CoWoS capacity. If subsequent validation of CoWoS, Intel EMIB, Google TPU ASPs, and HBM procurement is positive, further upside remains possible. Conversely, if back-end advanced packaging supply is constrained or smartphone demand remains weak, earnings upgrades and valuation expansion may be limited.

Risks

• Continued weakness in smartphone demand could constrain near-term revenue growth.
• Tight CoWoS and back-end advanced packaging capacity could limit the realization of AI ASIC revenue.
• Incremental Intel EMIB capacity is not expected to become effective until 2028, and the ramp-up pace remains uncertain.
• The extent of the ASP increase from Google TPU Zebrafish to Humufish remains uncertain, particularly due to the impact of HBM memory procurement.
• Market expectations for 2027 and 2028 AI ASIC revenue vary widely; if actual results fall below optimistic expectations, valuation could come under pressure.

What to watch

• Gross margin, guidance, and management commentary on 3Q26 price increases in the 2Q26 earnings release on July 31, 2026.
• Whether MediaTek's 2027 CoWoS capacity allocation is further confirmed or increased.
• ASP, HBM procurement, and volume ramp-up for the Google TPU Zebrafish and Humufish projects.
• The availability and ramp-up progress of the Intel EMIB solution in 2028.
• Subsequent revisions to market consensus for 2027 and 2028 AI ASIC revenue, EPS, and PE multiples.