TPU visibility improvement drives MediaTek re-rating, and Morgan Stanley names it a Top Pick

Overview

This report is Morgan Stanley's update on MediaTek's rating and target price. The core change is improved revenue and earnings visibility for the Google TPU-related AI ASIC opportunity, prompting the analyst to raise the target price again and name MediaTek a Top Pick. The report also acknowledges pressure on the smartphone business in 2026, but believes the market has already largely priced in that pressure, while TPU upside is not yet fully reflected in the share price.

Core views

The report's main views are: first, Google's launch of TPU v8 including TPU 8t and TPU 8i increases confidence that MediaTek's 3nm TPU ZebraFish for training use will be available within the year; second, the 2nm Humufish TPU may adopt a higher-value design, with ASP potentially above prior expectations; third, MediaTek may improve output flexibility in 2028-2029 through dual-source packaging via TSMC CoWoS-L and Intel EMIB; fourth, near-term smartphone weakness is clear, but Android AI agent phones may improve SoC demand after 2027.

Analysis framework

The report combines supply chain checks, product information from Google Cloud Next, TSMC management commentary on advanced packaging, smartphone demand surveys, earnings forecast revisions, and a residual income valuation model to assess MediaTek's AI ASIC, smartphone SoC, and valuation re-rating potential.

Methodology notes

• Valuation methodsResidual income model

  Use a residual income model to derive the base-case target price

  The target price of NT$2,588 is derived from a residual income model, with key assumptions including a 9.2% cost of equity, a 9% medium-term growth rate, and a 3.0% perpetual growth rate; the target price change mainly reflects upward revisions to EPS forecasts.

• Relative valuationOne-year forward P/E

  Use historical mean and standard deviation to judge re-rating potential

  The report believes MediaTek should move up from its historical average of about 18x toward nearly +1SD; the target price implies 20x 2027e EPS, based on strong TPU demand and smartphone pressure already being priced in.

• Scenario analysisBull/bear case target prices

  Provide a risk-reward range based on different business and competitive assumptions

  The bull-case target price is raised to NT$3,550 and the bear-case target price is raised to NT$1,320; core variables include TPU demand, smartphone market share, gross margin dilution, and progress in new businesses.

Asset mapping & comparison

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

• MediaTek (2454.TW)

  Core covered name; the report maintains Overweight and raises the target price

  Strengths

  Google TPU/AI ASIC opportunities are improving, while the 3nm TPU 8t and 2nm Humufish enhance visibility for medium- to long-term growth; modem demand and share gains with Apple and Pixel support upward earnings revisions.

  Weaknesses

  In 2026, the smartphone SoC business faces weak demand in the China market, cuts to 4nm wafer orders, and gross margin dilution pressure.

  Comparison

  The report shifts its Top Pick from TSMC to MediaTek, on the view that MediaTek has greater upside, more catalysts, and market consensus has not yet fully turned Overweight.

  Risks

  TPU mass production or ASP may fall short of expectations, smartphone demand may continue to deteriorate, and intensifying competition may pressure pricing and margins.

• TSMC (2330.TW)

  Key supply chain partner and relative comparison peer

  Strengths

  CoWoS remains the leading advanced packaging solution for AI/HPC, and TSMC retains an important position in advanced process technology and packaging.

  Weaknesses

  CoWoS is expensive, capacity constrained, and faces yield and warpage challenges for large chips.

  Comparison

  The report remains positive on TSMC, but believes MediaTek currently offers higher relative upside and more near-term catalysts.

  Risks

  If competition in advanced packaging or customers' multi-sourcing strategies changes value allocation, TSMC's long-term packaging leadership could be affected.

• Google TPU / AI ASIC

  Core growth driver behind MediaTek's re-rating

  Strengths

  TPU 8t will be available within the year with stronger positioning for training use, and the 2nm Humufish may bring higher ASP and greater revenue contribution.

  Weaknesses

  Dependent on Google demand, mass production timing, packaging solutions, and supply chain execution.

  Comparison

  The report believes MediaTek's 3nm TPU 8t is positioned for higher performance than the market's previous expectation for v7e, and compares its product positioning with Broadcom-related TPU offerings.

  Risks

  If Google TPU demand or product roadmap changes, MediaTek's AI ASIC revenue assumptions may be revised down.

Key data

• Target priceNT$2,588.00Raised from NT$1,988; the base case corresponds to 20x 2027e EPS.
• Current share priceNT$2,215.00Closing price on April 23, 2026.
• Implied upside17%Upside relative to the target price.
• RatingOverweightOverweight maintained, and MediaTek named a Top Pick.
• 2026/2027/2028 earnings forecast revisions+17% / +10% / +31%Mainly reflects modem demand, share gains with Apple and Pixel, and upside in 2nm TPU ASP.
• 2026 AI ASIC revenue guidance assumption>US$1bnThe report assumes about 400k units and an ASP of about US$4,000.
• 2nm Humufish TPU ASP assumptionUS$12k-15kAbove the previous US$8k-10k expectation, due to increases in the number of compute dies and I/O dies, SerDes upgrades, and larger packaging size.
• 2Q26 revenue forecastDown 5% QoQReflects inventory correction in China's smartphone chips and cuts to wafer orders.
• Global smartphone shipment forecastCY26 about 1.1bn units, YoY -13%; Android YoY -15%Based on views from Morgan Stanley's global team AlphaWise Smartphone Survey.
• Impact of 4nm wafer order cuts20-30k wafers, about 15-20mn chip shipmentsInvolves the China smartphone SoC supply chain, including MediaTek and Qualcomm.

Impact & implications

If the report's view plays out, MediaTek's investment narrative may shift from cyclical smartphone SoC pressure to structural growth driven by AI ASIC and Google TPU, potentially lifting its valuation center. Near-term catalysts include Google's Android agent strategy at I/O, MediaTek's keynote at Computex, confirmation of TPU supply chain mass production, and the April 30 earnings call clearing expectations around smartphone weakness.

Risks

• Further deterioration in smartphone demand in China and emerging markets.
• Intensifying competition leading to price competition, market share loss, and gross margin pressure.
• TPU demand, mass production timing, or ASP falling short of expectations.
• A weaker AI smartphone replacement cycle that fails to offset additional costs in China smartphones.
• More severe-than-expected gross margin dilution from the TPU business.
• Slower-than-expected development of new businesses such as ASIC, IoT, automotive, and edge AI.

What to watch

• Whether MediaTek's April 30, 2026 earnings call fully clears expectations for smartphone weakness.
• Google I/O on May 19, 2026 and the release of its Android agent strategy.
• MediaTek's keynote during Computex and related AI ASIC information.
• Confirmation of in-year availability, orders, and supply chain mass production for Google TPU 8t/8i.
• The packaging path for the 2nm Humufish TPU and execution of dual sourcing between TSMC CoWoS-L and Intel EMIB-T.
• China Android smartphone inventory correction, cuts to 4nm wafer orders, and changes in SoC shipments.