3nm Chip Ramp-Up Drives Revenue Growth; Alchip Maintains Overweight Rating with NT$5,088 Target Price

Overview

This report updates the latest business developments of Alchip Technologies (3661.TW) based on Morgan Stanley's feedback from the Asia AI Summit 2026. The report concludes that although the first quarter of this year was a trough due to a lack of new projects, revenue is expected to grow significantly on a sequential basis throughout the year as the 3nm AI accelerator chips rapidly ramp up. The firm maintains an 'Overweight' rating with a target price of NT$5,088, implying approximately 15% upside.

Core views

The core views center on capacity release and order visibility for advanced-node chips. First, regarding financials, Q1 is viewed as a trough primarily due to a gap in new project launches. However, with the 3nm accelerator chips beginning small-volume shipments to major cloud service providers (CSPs) in May, volumes are expected to surge in June and July, peaking in August. This rapid ramp-up will drive sequential revenue growth from Q2 through Q4. The company's full-year 3nm revenue guidance exceeds $1.5 billion, supported by higher-than-expected initial yields, reinforcing the credibility of this guidance. Second, regarding technological evolution and product pipeline, the 2nm chip tape-out is progressing smoothly and is expected to be completed by end of 2026, with mass production planned for Q4 2027. Additionally, the ADAS chip for Ideal Auto is currently in shipment, with its next-generation iteration scheduled for tape-out in Q3. Beyond these key projects, Alchip is also designing innovative projects for U.S. emerging clients based on 3nm or 2nm nodes to address AI infrastructure bottlenecks. Finally, looking ahead, the company's current order visibility extends into the second half of 2027, with a set annual growth target of 40%. This underscores the strength of its competitiveness and market demand in advanced-node technologies, positioning it to continue benefiting from the surge in AI computing demand.

Analysis framework

Morgan Stanley's analytical approach follows an 'event-driven + fundamental validation' framework. First, frontline business dynamics are obtained through industry events (Asia AI Summit) to directly validate management's statements regarding the 3nm chip shipment timeline (small volume in May → surge in June-July → peak in August). Second, specific financial data (e.g., $1.5B full-year revenue guidance, 40% growth target) are used to quantify the intensity of the business recovery. Finally, tracking technological milestones (2nm progress) and customer structure (CSPs, Ideal Auto, U.S. emerging clients) helps assess the sustainability of long-term growth. This method integrates short-term order realization with long-term technological positioning to form a judgment on the company's performance over the coming quarters to one year.

Methodology notes

• Valuation MethodResidual Income Model (RIM)

  Base-case valuation using the Residual Income Model, assuming a constant cost of equity, mid-period growth rate of 16%, and terminal growth rate of 5%.

  This is a commonly used absolute valuation method that determines intrinsic value by calculating the present value of future excess earnings. In this report, analysts applied this model with a cost of equity of 10.4% and specific growth assumptions to derive the NT$5,088 target price.

• Cycle and Sentiment FrameworkBusiness Cycle Turnaround Analysis

  Identifying the inflection point where industry or company performance shifts from trough to recovery, with emphasis on volume and pricing changes driven by new product mass production.

  The report explicitly identifies Q1 as a 'trough' and forecasts sequential growth thereafter, reflecting a classic business cycle turnaround analysis. Analysts use the timing of the 3nm chip's transition from pilot production to mass production to identify an imminent earnings reversal.

Asset mapping & comparison

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

• Alchip Technologies (3661.TW)

  As a global leader in IC design services, Alchip directly benefits from the surge in demand for AI accelerator chips, particularly from the落地 of 3nm/2nm advanced-node orders.

  Strengths

  Technology leadership with major client 3nm orders and yields exceeding expectations; diversified product portfolio covering AI and automotive electronics; 2nm R&D ahead of peers.

  Weaknesses

  Q1 earnings pressured by a gap in new project launches; high dependence on the product launch cadence of a few large customers.

  Comparison

  Compared to traditional foundries, its focus on design services better aligns with the needs of AI startups and cloud vendors, enabling faster responsiveness.

  Risks

  Slower-than-expected domestic HPC localization in China or delays in AI chip development could lead to lower-than-expected orders; intensified pricing competition may compress margins.

Key data

• Current Stock Price (2026/05/29)NT$4,415.00Closing price as reference
• Target PriceNT$5,088.00Implies 15% upside
• Full-Year 3nm Revenue Guidance$1.5B+Supported by higher-than-expected initial yields
• Annual Volume Growth Target40%Year-over-year growth rate
• Peak 3nm Shipment TimingAugust 2026Followed by surge in June-July
• 2nm Tape-Out CompletionEnd of 2026Mass production expected in Q4 2027

Impact & implications

For Alchip Technologies, the successful ramp-up of 3nm chips signifies a rapid rebound from the Q1 trough, leading to significant earnings recovery in the second half of the year. This not only boosts near-term revenue but also validates the company's technological capabilities and market position in advanced-node foundry services. For investors, this implies potential upward revisions to near-term earnings expectations, while the advancement of the 2nm project provides new momentum for medium- to long-term growth.

Risks

• Premature surge in demand for Chinese GPUs and AI chipsets (Upside risk)
• Accelerated NRE (Non-Recurring Engineering) demand (Upside risk)
• Alchip wins more HPC projects from U.S. hyperscale data centers (Upside risk)
• Slower-than-expected domestic HPC localization in China (Downside risk)
• AI chipset development significantly behind schedule (Downside risk)
• Deceleration in NRE (Non-Recurring Engineering) demand (Downside risk)
• Intensified price competition (Downside risk)

What to watch

• Whether actual 3nm chip shipments in June-August meet the expected surge
• Progress of 2nm tape-out and adherence to the 2027 mass production timeline
• Tape-out status of the next-generation Ideal Auto ADAS chip
• Progress of U.S. emerging clients' 3nm/2nm projects
• Speed of China's HPC localization and domestic substitution