MediaTek (2454) Report Interpretation

Overview

This update examines how NVIDIA and Alphabet’s participation in MediaTek’s convertible bond could deepen ASIC collaboration. Morgan Stanley maintains Overweight and Top Pick, viewing the financing and technical partnership as improving MediaTek’s route to additional cloud AI customers and supporting upside to its 2028 ASIC revenue assumptions.

Core views

MediaTek announced successful pricing of a US$3.9bn overseas convertible bond, with participation from NVIDIA, Alphabet and global institutional investors. NVIDIA invested US$3.5bn in MediaTek convertible bonds. Morgan Stanley interprets this strategic capital participation as reinforcing an existing partnership rather than merely providing financing, particularly as MediaTek and NVIDIA seek to build AI edge-to-cloud computing platforms. The technical link centers on NVIDIA’s NVLink Fusion platform. The report says MediaTek’s XPU customers can use NVIDIA’s scale-up and scale-out networking technology to construct AI server systems, helping take custom XPUs into NVIDIA NVLink-connected, rack-scale AI factories. Collaboration is expected to span multigenerational cloud AI factories, local AI computing and automotive, broadening the areas in which the two companies can work together. MediaTek did not change its 2027 ASIC total-addressable-market or market-share guidance and indicated that the benefits would take time. Even so, Morgan Stanley believes the expanded partnership raises the probability that MediaTek can win a second cloud-service-provider customer; management said in an August 31 interview that it was engaging with some customers. The report also points to a solidified Alphabet TPU partnership as an additional support for the ASIC thesis. Morgan Stanley expects convertible-bond proceeds to support the chip supply chain, including procurement of components such as HBM and ABF substrates and prepayment for wafer-foundry capacity. It argues that this preparation can contribute to higher revenue and, together with a possible second or third CSP win, creates upside to its 2028 ASIC revenue assumption. The report maintains Overweight and Top Pick on MediaTek. Its NT$5,588 target price implies 42% upside from the NT$3,925 closing price on August 31, 2026. The valuation uses a residual income model with a 9.2% cost of equity, 12.0% intermediate growth rate and 3.0% terminal growth rate.

Analysis framework

Morgan Stanley links the convertible-bond financing, the NVIDIA technical platform partnership and management commentary to MediaTek’s potential customer wins, supply-chain preparation and longer-term ASIC revenue. It then values the shares using a residual income model and assesses upside and downside operating scenarios.

Methodology notes

• Valuation methodsRIM (Residual Income Model)

  Residual income model

  The report values MediaTek by discounting value created beyond the required return on equity, using a 9.2% cost of equity, 12.0% intermediate growth and 3.0% terminal growth.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  ASIC supply-chain preparation

  The report connects financing proceeds for HBM, ABF substrates and foundry-capacity prepayments with MediaTek’s ability to support ASIC production and related revenue.

Asset mapping & comparison

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

• MediaTek (2454.TW)

  Primary covered company; positioned to benefit from deeper NVIDIA and Alphabet ASIC partnerships.

  Strengths

  NVIDIA NVLink Fusion integration, potential additional CSP customer wins, Alphabet TPU collaboration and financing for supply-chain preparation.

  Weaknesses

  Management did not change 2027 ASIC TAM or market-share guidance and indicated that benefits will take time.

  Risks

  Smartphone demand weakness, more intense pricing competition, weaker demand for new products, market-share loss and more severe margin dilution.

Key data

• Overseas convertible bondUS$3.9bnMediaTek announced successful pricing with participation from AI infrastructure partners and global institutional investors.
• NVIDIA convertible-bond investmentUS$3.5bnInvestment in convertible bonds issued by MediaTek.
• Target priceNT$5,588.00Morgan Stanley’s target price; implies 42% upside.
• Closing share priceNT$3,925.00August 31, 2026 closing price.
• 2028E revenueNT$2,083.1bnMorgan Stanley ModelWare estimate.
• 2028E EPSNT$308.25Morgan Stanley estimate.
• 2028E ROE70.2%Morgan Stanley ModelWare estimate.

Impact & implications

Morgan Stanley believes the financing and NVIDIA integration improve MediaTek’s ability to pursue additional CSP ASIC customers and prepare component and foundry capacity. A strengthened Alphabet TPU relationship and potential material-preparation revenue underpin the report’s view of upside to its 2028 ASIC revenue assumption.

Risks

• Downside risks include deteriorating smartphone demand in China and other emerging markets.
• More intense competition could lead to pricing pressure.
• New products could see weak demand and cause market-share loss.
• Margin dilution could be more severe.