AI drives semiconductor demand growth, majority of Taiwanese firms receive buy rating

Overview

Goldman Sachs met with management of seven Taiwanese semiconductor companies at the 2026 Taiwan Computer Expo and Corporate Day on the first day. The core conclusion is that AI infrastructure drives structural growth in semiconductor demand, with enterprise ASICs, data centers, and automotive electronics being major growth engines; supply bottlenecks in advanced packaging, substrates, and HBM still exist; and test stages see increased value due to higher chip complexity.

Core views

Broad prospects for enterprise ASIC markets: MediaTek reaffirms TAM of $70 billion-$80 billion by 2027 and aims for 10-15% market share, believing this forecast is lower than actual customer demand. Next-generation ASIC designs increase in complexity, potentially raising gross margin by several percentage points and ASP by at least doubling. Automotive electronics target $1 billion revenue contribution in 2027. Strong demand in data centers: Silicom reported 15% data center revenue in Q1 2026 and a 90% year-over-year growth rate, covering eSSD, optical modules, and server motherboard components. Expected to account for 15-20% of total revenue in 2026, with automotive revenue growing 30-50%. Rising AI testing demand: Kymeta plans to double its socketed pin capacity to 9 million per month by the end of 2026 and continues targets to double annually until 2030. CPO (Co-packaged Optical) product testing times significantly extend, adding higher value. Precision Measurement expects 30% revenue growth in 2026 with a gross margin over 56%, and CPO equipment gross margin up to 60%. Stable performance of BMC chips: Hynix guided Q3 2026 revenue between NT$4.1-4.3 billion with a gross margin of 67-68%. Customer lead time exceeds 36 weeks, with CSP customers pre-ordering 2027 capacity. The new AST2700 is expected to exceed 50% market share within two years, with an ASP of NT$22-25 (up 37-56% from AST2600's NT$16). Differentiated competition in mature processes: Worldsemi expects 2026 revenue growth of 20% (above industry average of 15%), but valuations are already high (+2.0 standard deviations). 12-inch capacity expansion will dilute future three-year gross margins.

Analysis framework

This analysis uses a bottom-up fundamental framework driven by company fundamentals: 1. Demand decomposition: Analyzing growth momentum across application areas (AI servers, data centers, automotive, consumer electronics) 2. Identifying supply bottlenecks: Focusing on constraints in advanced packaging, substrates, HBM, and test capacity 3. Evaluating competitive barriers: Based on technological iteration (like CPO, BMC integrated FPGA) and capacity expansion capabilities 4. Validating financial models: Combining drivers of revenue growth and changes in gross margin structures 5. Valuing using relative valuation methods: Comparing to historical cycles and peer levels

Methodology notes

• Industry/sector analysis frameworkSupply-demand framework

  Analysis of supply-demand mismatch

  The report compares AI-related demand (ASICs, data centers) with supply constraints in critical links such as advanced packaging/HBM to judge sustainability and price pressures

• Valuation methodPE/PEG valuation

  Relative valuation method

  All company valuations use the P/E multiple method: Like MediaTek's target P/E of 25x (+1.8 standard deviations), Hynix at 40x (matching 10-year average)

• Company fundamentals and financial frameworkFree cash flow analysis

  Impact of capacity expansion on cash flows

  Worldsemi's 12-inch capacity expansion plan (capital expenditure of NT$60-70 billion in 2026) quantifies future three-year gross margin dilution impact

• Competitive and strategic frameworkMoat / competitive advantage

  Technology integration barrier

  Hynix's AST1840 chip reduces customer board-level complexity through FPGA integration, building platform-level moats

Asset mapping & comparison

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

• MediaTek (2454.TW)

  Leading enterprise ASIC designer

  Strengths

  Market leadership in smartphone APs, ASIC design capabilities, client relationships

  Weaknesses

  Dependency on external advanced packaging, HBM controlled by clients

  Comparison

  Compared to global FPGA vendors, offers better TCO

  Risks

  Weakend smartphone demand, rising wafer fabrication costs

• Hynix (5274.TWO)

  Leading BMC chipmaker

  Strengths

  70% market share, surge in AI server demand, AST1840 integration innovation

  Weaknesses

  Bottlenecks in base materials/post-processing capacity

  Comparison

  Compared to traditional BMC, faster iteration cycle

  Risks

  Slower recovery in server demand, increased competition

• Silicom (6415.TW)

  PMIC designer

  Strengths

  12-inch capacity, layout in data centers and automotive

  Weaknesses

  Shortage of 8-inch capacity

  Comparison

  Gen-4 products experiencing structural gross margin improvement

  Risks

  Unmet expectations in demand recovery, cost control

Key data

• MediaTek's enterprise ASIC target market share10-15%TAM of $70 billion-$80 billion by 2027
• Silicom's data center revenue growth90% YoYContributes 15% to total revenue in Q1 2026
• Kymeta's socketed pin capacity planning9 million/monthTarget by end of 2026 (vs 3.5 million at end of 2025)
• Hynix AST2700 ASPNT$22-25Up 37-56% from AST2600's NT$16
• Worldsemi's 12-inch capacity44kwpmTarget by end of 2028 (including intermediate layers)

Impact & implications

Accelerated investment in AI infrastructure will reshape the semiconductor value chain: Enterprise ASIC design companies (MediaTek) and accompanying test vendors (Kymeta, Precision Measurement) directly benefit; power management for data centers (Silicom) and server management chips (Hynix) experience structural growth; mature process foundries (Worldsemi) face differentiated competition pressure. Short-term supply bottlenecks (packaging/base materials) constrain overall industry elasticity, but leading companies can enhance their barriers through technology innovation (like CPO, FPGA integration).

Risks

• Weaker-than-expected terminal demand (particularly smartphones)
• Increased wafer fabrication costs impacting gross margin
• Slower ramp-up of enterprise ASICs
• Continued supply bottlenecks in advanced packaging/HBM
• Slowing in AI server demand growth

What to watch

• Improvement progress of wafer fab and packaging capacity in H2 2026
• Launch timeline for CPO products (potential start in H2 2026)
• Production progress of Hynix AST1840 (by end of 2027)
• Next-generation ASIC flow sheets at MediaTek (Q4 2026)
• Penetration rate of Silicom Gen-4 products