Bank of America maintains MediaTek Buy rating due to TPU volume growth and improved AI ASIC pipeline boosting 2027 earnings flexibility

Overview

This is a company research and rating adjustment report on MediaTek. Bank of America notes that the company's short-term sales and profitability have outperformed market expectations, while medium-term structural changes stem from the TPU production ramp-up, progress in Google training TPU collaborations, and broader discussions around AI accelerator ASIC customers. The report maintains a Buy rating and significantly raises the target price to NTS3,000.

Core views

The central view is that MediaTek's traditional consumer business will continue to face pressure in 2026, but cloud ASIC projects will become the primary growth driver in 2027. Bank of America expects TPU production to proceed as planned starting mid-Q2 2026, with TPU sales projected at approximately US$2 billion in 2026 and US$12 billion in 2027, contributing roughly 15% and 41% of operating profit, respectively. With subsequent TPU tape-outs, second-half 2027 wafer starts, and potential AI accelerator ASIC projects advancing through 2028, ASIC-related businesses may propel an earnings revision cycle and valuation re-rating.

Analysis framework

The report evaluates MediaTek by integrating quarterly results and guidance, segment-level revenue and gross margin projections, trends in 5G SoC shipments and ASPs, assumptions about cloud ASIC revenue ramp-up, comparisons between BofA and market consensus estimates, and a P/E-based valuation framework. The target price employs a 23x 2027E P/E multiple, split into implied valuations reflecting higher multiples for TPU-related earnings and lower multiples for merchant business segments.

Methodology notes

• Valuation methodsP/E valuation

  Target price methodology based on 2027E P/E

  The target price of NTS3,000 is derived from a 23x 2027E P/E; the report notes implicit valuations of NTS83 for TPU contributions and NTS46 for merchant business segments.

• earnings forecastingSegment forecast

  Revenue, gross margin, and operating profit forecasts segmented by business line

  The report separately projects revenues, gross margins, and operating profits for Mobile Phone, Smart Edge Platforms, Power IC, and Cloud ASIC, predicting that Cloud ASIC will significantly accelerate total revenue in 2027E.

• quality and operational metricsiQmethod

  Standardized operational and earnings quality indicators developed by BofA Global Research

  The report discloses Return on Capital Employed, Return on Equity, Operating Margin, Cash Realization Ratio, Asset Replacement Ratio, Tax Rate, and Net Debt-to-Equity ratios to ensure consistent research methodologies.

Asset mapping & comparison

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

• MediaTek 2454.TW

  Core coverage asset, Buy rating

  Strengths

  Increased visibility of TPU production ramp-up, expanding AI accelerator ASIC pipeline, solid balance sheet and cash flow, and ASP improvements driven by 5G premiumization.

  Weaknesses

  Core consumer business remains under pressure in 2026, Cloud ASIC gross margins may lag behind some traditional lines, and current valuations are already significantly re-rated.

  Comparison

  Compared to market consensus, Bank of America is more optimistic about 2027E EPS and operating profits, mainly due to Cloud ASIC volume and profit contributions.

  Risks

  Weaker-than-expected demand for smartphones and TV terminals, intensifying competition, downward pressure on ASPs and gross margins, rising foundry costs, and slower-than-expected progress in Meta inference ASIC bidding.

• TPU / Cloud ASIC Business

  Main source of earnings revision

  Strengths

  Production ramp-up beginning mid-Q2 2026, potential revenue surge in 2027, backed by Google training TPU collaboration.

  Weaknesses

  Revenue highly dependent on a few large projects, CoWoS supply constraints, and customer adoption pace.

  Comparison

  The report assigns higher implied valuation multiples to TPU operations than to merchant business, reflecting its growth potential and strategic value.

  Risks

  Delays in tape-out, wafer start, or customer mass production, or failure of ASP and demand assumptions.

• 5G Smartphone SoC Business

  Traditional core business and cash flow foundation

  Strengths

  5G market share expected to remain broadly stable, with higher-end flagship SoC penetration helping boost ASPs.

  Weaknesses

  Weak smartphone cycle, Q1 2026 smartphone sales down 17% quarter-over-quarter.

  Comparison

  Compared to Cloud ASIC, smartphone SoC growth appears more moderate, playing a more foundational role.

  Risks

  Weaker-than-expected Chinese smartphone demand, insufficient competitive easing, and lower-than-expected gross margins on flagship products.

Key data

• Target PriceNTS3,000Raised from the previous NTS2,160.
• Current PriceTWD2,610The report table lists the price as TWD2,610.
• 2026E EPSNTS64.40Raised from the previous NTS51.39.
• 2027E EPSNTS129.02Raised from the previous NTS105.49.
• TPU Sales ForecastApproximately US$2 billion in 2026E; approximately US$12 billion in 2027EBased on assumed chip ASPs of US$4,600/US$5,100 and CoWoS demand of 15k/110k units.
• Q1 2026 Profit MarginsGross margin 46.3%; Operating margin 15.3%Sales declined approximately 1% quarter-over-quarter, while profit margins improved moderately.
• Q2 2026 Revenue GuidanceFlat-to-down 6% quarter-over-quarterBetter than the market's earlier expectation of a 7%-13% decline.
• 2027E Sales ProjectionNTS1,025,725mnBofA forecasts a significant increase compared to 2026E, primarily driven by Cloud ASIC.

Impact & implications

If Bank of America's TPU and AI ASIC assumptions materialize, MediaTek's investment thesis will shift from being centered on smartphone SoCs to a combination of resilient consumer semiconductors and high-growth cloud AI ASICs. This could result in simultaneous upgrades to revenue, profits, and valuation multiples in 2027. However, given that the stock price is already near the upper end of its valuation range, further upside will depend heavily on securing TPU orders, locking down CoWoS supply chains, advancing customer projects, and achieving targeted gross margins.

Risks

• Weaker-than-expected demand for consumer-related smartphones and TV terminals.
• Macroeconomic challenges such as inflation and policy pressures suppressing demand or valuations.
• Intensified competition among established players and new entrants in the smartphone and TV SoC space.
• Higher-than-expected pressure on ASPs, gross margins, or foundry costs.
• Slower-than-expected progress in Meta inference ASIC bidding or related AI accelerator projects.
• Recent significant stock price appreciation, placing valuations at historically elevated levels and increasing sensitivity to earnings performance.

What to watch

• Whether TPU production ramp-up starting mid-Q2 2026 proceeds according to plan.
• Whether TPU revenue in 2026 approaches approximately US$2 billion and expands toward US$12 billion in 2027.
• Progress of subsequent TPU projects during late 2026 to early 2027, including tape-out and second-half 2027 wafer starts.
• Whether major startups and hyperscalers' AI accelerator ASIC customer discussions translate into substantial orders by 2028.
• Whether Q2 2026 gross and operating margins fall within the upper half of the company's guidance range.
• Changes in 5G smartphone SoC market share, flagship SoC ASPs, and overall Chinese smartphone demand.