MediaTek Target Raised to NT$4,380; ASIC Growth Sought

Overview

This report examines MediaTek's recent stock performance and future growth potential, arguing that despite a doubling in price over the past month, its strong growth outlook in the AI chip sector justifies a higher valuation. The report raises ASIC revenue forecasts and lifts the target price to NT$4,380 (22x forward P/E), maintaining an 'Outperform' rating.

Core views

Key views include: Demand Side: MediaTek benefits from TSMC's CoWoS capacity expansion and rising demand for Google TPUs. Commitments from customers like Anthropic improve demand visibility, while rapid resolution of test issues lowers execution risk. Revenue Mix: Smartphone revenue is expected to decline, but ASIC growth will offset this. ASIC revenue is forecasted at $2B, $15B, and $22B for 2026–2028, increasing from ~10% to ~50% of total revenue. Profitability: While gross margins may be diluted by ASICs, operating margins are expected to improve significantly. This will drive EPS growth at a 50% CAGR from 2025 to 2028, well above consensus. Valuation and Target: Based on a 22x forward P/E, the target price is raised from NT$3,390 to NT$4,380, implying 28% upside. Catalysts: More ASIC customers and projects, as well as Edge AI applications (e.g., OpenAI phone).

Analysis framework

The report uses a bottoms-up approach, following these steps: 1. Segment revenue: Disaggregates contributions from smartphones, ASICs, and other businesses, forecasting changes based on industry trends. 2. Assess ASIC growth: Raises ASIC revenue forecasts based on TSMC's CoWoS capacity expansion and growing Google TPU demand. 3. Model profitability and EPS: Anticipates slightly lower gross margins but leverages operating leverage to drive high EPS growth. 4. Derive fair value: Lifts the target price to NT$4,380 (22x forward P/E) based on the high EPS growth outlook. The logic is clear, combining industry trends with company fundamentals to reach a bullish conclusion.

Methodology notes

• Industry/Supply-Demand FrameworkSupply-demand framework

  The report evaluates MediaTek's ASIC growth potential, focusing on supply (TSMC capacity) and demand (Google TPU) dynamics.

  The supply-demand framework helps explain how MediaTek can meet rising customer demand through expanded supply, driving revenue growth.

• Valuation MethodologyPE/PEG valuation

  The report sets the target price based on EPS growth expectations and peer valuations.

  PE/PEG compares growth with valuation multiples to assess whether a stock is undervalued or overvalued. Here, the report argues MediaTek's high EPS growth should be reflected in a higher P/E.

Asset mapping & comparison

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

• 2454.TW

  MediaTek is the core focus, benefiting from AI chip demand and TSMC capacity expansion.

  Strengths

  Strong ASIC growth and high EPS growth expectations.

  Weaknesses

  Declining smartphone business and competition from Qualcomm.

  Comparison

  Compared to Broadcom (AVGO), MediaTek has significant upside potential.

  Risks

  High memory prices could shift hyperscale budgets away from TPUs; slower 5G adoption; weak smartphone demand.

Key data

• ASIC Revenue Forecast$2B, $15B, and $22B for 2026–2028Significantly raised, reflecting CoWoS capacity expansion and improved demand.
• Google TPU ShareFrom ~10% in 2026 to ~50% in 2028MediaTek's position in Google TPU procurement is strengthening.
• EPS Growth Rate50% CAGR from 2025 to 2028Well above consensus, supporting the valuation.
• Target PriceNT$4,380Implies 28% upside from the current price, at 22x forward P/E.

Impact & implications

The report concludes that MediaTek's ASIC business will be the primary growth driver over the next few years, particularly in the AI chip space. Rising Google TPU share and potential new customers will sustain strong growth. Meanwhile, Edge AI could open longer-term opportunities. However, the ongoing decline in smartphone revenue remains a headwind, though it will be offset by ASIC growth.

Risks

• High memory prices could lead hyperscale customers to shift budgets from TPUs to CPUs/general servers.
• Slower-than-expected 5G penetration.
• Weak demand for smartphones.
• Increased competition from Qualcomm.

What to watch

• Progress on landing more ASIC customers and projects.
• Advances in Edge AI applications (e.g., OpenAI phone).
• TSMC's actual CoWoS capacity expansion timeline.
• Changes in MediaTek's share of Google TPU procurement.