MediaTek May Sales Meet Expectations; TPU Business Drives Growth

Overview

Bernstein released its May sales tracking report on MediaTek, noting that revenue performance was in line with expectations. Although facing challenges in the smartphone segment, the robust growth in data center TPU business has more than offset negative impacts. The firm maintains an Outperform rating with a target price of TWD 4380.

Core views

MediaTek's May revenue was TWD 47 billion, representing a 1% increase month-over-month and a 5% increase year-over-year. Combined revenue for April-May totaled TWD 94 billion, reaching 65% of the midpoint of Q2 guidance, within the seasonal median range of 62-67% observed over the past decade. If June follows historical seasonal patterns, Q2 revenue is expected to be 1.2% above consensus estimates and 1.6% above the midpoint of guidance. The TPU business has become a core growth driver. The firm has raised 2026-28 TPU revenue forecasts to USD 2 billion, USD 15 billion, and USD 22 billion, corresponding to Google's TPU procurement share of approximately 10%, 40%, and 50%, respectively. Google's USD 85 billion capital injection and Broadcom's reluctance to further raise guidance may present upside risks to the 2028 forecast. Additionally, MediaTek's partnerships with NVIDIA for PC CPUs and Microsoft for MicroLED fiber optics strengthen its positioning in the data center market. The smartphone business continues to face pressure. China smartphone tracking indicates that pricing pressure from rising memory costs is spreading from entry-level to mid-range segments, and high inventory levels among Android OEMs suggest limited ability to pass costs to consumers. However, the firm believes the strong contribution from TPU business is sufficient to offset weakness in the smartphone segment.

Analysis framework

The firm employs a combination of monthly sales tracking and seasonal analysis, evaluating current performance by comparing it against historical seasonal patterns (the share of revenue in the first two months of Q2 over the past decade ranges from 62-67%). A share breakdown approach is used for the TPU business, forecasting market share changes based on Google's capital expenditure and competitor movements. For the smartphone business, demand conditions are assessed via channel inventory levels and the ability to transmit cost changes.

Methodology notes

• Valuation MethodPE/PEG valuation

  Using 22x forward P/E for target price valuation

  The firm derives a target price of TWD 4380 by multiplying a 22x P/E multiple by the estimated EPS for Q5-Q8 of 2026 at TWD 199. This is a common relative valuation method in the semiconductor industry, assessing valuation reasonableness through comparison with industry average P/E ratios.

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Analyzing dual pressures of memory prices and demand on smartphone business

  By tracking memory price trends and OEM inventory levels, the firm assesses both soft demand and cost-side pressures in the smartphone sector. This supply-demand framework is applicable for gauging cyclical industry sentiment shifts.

• Fundamental Company Financial FrameworkFree cash flow analysis

  TPU business growth drives free cash flow improvement

  High growth expectations for the TPU business will improve the company's overall cash flow situation, supporting valuation uplift. Free cash flow analysis is a key metric for evaluating the growth prospects of technology companies.

Asset mapping & comparison

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

• MediaTek (2454.TW)

  Direct beneficiary of TPU business growth

  Strengths

  Strengthened positioning in the data center market; partnerships with Google, NVIDIA, and Microsoft

  Weaknesses

  Smartphone business weighed down by memory prices and weak demand

  Comparison

  More aggressively raising guidance in TPU compared to Broadcom

  Risks

  Intensifying competition in 5G market from Qualcomm

Key data

• May RevenueTWD 47 billionUp 1% MoM and 5% YoY
• April-May Cumulative RevenueTWD 94 billionReaches 65% of Q2 guidance midpoint
• TPU Revenue Forecast (2026-28)USD 2 billion / 15 billion / 22 billionCorresponding to Google TPU procurement share of 10%/40%/50%
• Target PriceTWD 4380Implies 22x forward P/E
• Current Stock PriceTWD 4155Implies 5% upside

Impact & implications

The research report suggests that MediaTek's strategic layout in the data center market will significantly enhance long-term growth potential. The high growth expectation for the TPU business can offset cyclical fluctuations in the smartphone segment. Partnerships with NVIDIA and Microsoft strengthen its competitiveness in AI infrastructure, potentially leading to a re-rating of the stock.

Risks

• Intensifying competitive pressure from Qualcomm in the 5G market
• Slower 5G adoption (especially in China)
• Weak global smartphone demand
• Slow progress in diversification of non-smartphone businesses
• Overall downturn cycle in the semiconductor industry

What to watch

• Realization of TPU business revenue for 2026-28
• Progress in destocking of smartphones
• Advancement of projects with NVIDIA and Microsoft
• Impact of memory price trends on gross margins