MetaX Maintains Equal-weight Rating with Target Price of 758 Yuan

Overview

This research report by Morgan Stanley provides a risk-reward update for MetaX Integrated Circuits (688802.SS), primarily revising earnings forecasts for the coming years while maintaining the Equal-weight rating and 758 yuan target price. The report highlights MetaX's potential in the AI chip sector, particularly its market advantages from CUDA compatibility.

Core views

Morgan Stanley raised its EPS forecasts for 2026 and 2027 by 11% and 4%, respectively, based on strong gross margin performance in Q1, while keeping the 2028 forecast unchanged. However, due to minimal absolute changes, the valuation impact was insignificant, hence the target price remains unchanged. The firm identifies three core strengths of MetaX: 1) Good CUDA compatibility through MXMACA, lowering migration barriers and facilitating faster adoption by existing NVIDIA users; 2) Stable government and enterprise orders providing revenue visibility, with high-margin products improving gross margins in the short term; 3) Mature domestic supply chain, with SMIC N+1 process ensuring stable production capacity and relatively consistent yield rates. Additionally, the firm outlines three scenario assumptions for future prospects: Under the base case, revenue CAGR exceeds 100% from 2025-2028, with market share expansion and gross margins potentially surpassing 60%; under the optimistic scenario, revenue CAGR reaches 66%, entering mainstream AI frameworks and expanding sovereign clients; the pessimistic scenario assumes slower revenue growth, declining market share, and gross margins below 45%.

Analysis framework

The firm first revised earnings forecasts based on quarterly financial data, then evaluated MetaX's competitiveness in the AI chip sector from a fundamental perspective. The analytical framework includes: 1) Assessing product penetration in existing ecosystems through CUDA compatibility; 2) Evaluating supply chain stability and production capacity; 3) Judging profitability improvement potential based on gross margin trends; 4) Constructing a multi-scenario forecast model using risk-reward charts to outline potential market fluctuations. This methodology reflects a comprehensive consideration of industry cyclicality, technological iteration, and competitive landscape.

Methodology notes

• Company Fundamentals & Financial FrameworkFree cash flow analysis

  Estimating intrinsic value through free cash flow models

  The firm calculates discounted future free cash flows to assess valuation, considering capital expenditures and working capital changes, to validate the reasonableness of the current target price.

• Valuation methodsPE/PEG valuation

  Valuation using P/E or PEG ratios

  The firm uses P/S ratio as the valuation benchmark, with the target price implying 74x 2026e P/S, above industry average, reflecting growth expectations.

• Industry Analysis FrameworkSupply-demand framework

  Analyzing the balance between market demand and supply capacity

  The report assesses MetaX's future profitability by analyzing the balance between demand growth and production capacity in the AI chip sector.

• Industry Analysis FrameworkUpstream-Midstream-Downstream Transmission

  Analyzing the interconnected impacts of industry chain segments

  By evaluating the maturity of the domestic semiconductor supply chain, the report confirms MetaX's ability to secure stable raw materials and manufacturing services, ensuring product delivery.

Asset mapping & comparison

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

• MetaX (688802.SS)

  MetaX is a leading domestic AI chip company, benefiting from domestic substitution and CUDA compatibility

  Strengths

  CUDA compatibility facilitates faster market adoption; mature supply chain support

  Weaknesses

  Faces intense competition; high R&D investment

  Comparison

  Compared to peers, its product adaptability is stronger, offering differentiation advantages

  Risks

  Revenue growth may be impacted by delayed customer validation or intensified competition

Key data

• 2026 EPS Forecast0.1 YuanRaised by 11% (previously 0.09 Yuan)
• 2027 EPS Forecast1.4 YuanRaised by 4% (previously 1.34 Yuan)
• 2028 EPS Forecast2.5 YuanUnchanged
• Target Price758 YuanImplies 74x 2026e P/S ratio
• Current Price758.03 YuanLargely in line with target price

Impact & implications

The report suggests MetaX has strong growth potential under domestic substitution and rising AI computing demand, particularly with its CUDA compatibility advantage. However, it faces intense competition and high R&D cost pressures. The Equal-weight rating reflects a neutral stance, indicating current valuations already price in growth expectations. Investors should monitor its market share expansion and gross margin improvements in the AI chip sector.

Risks

• Delayed customer validation or lower-than-expected market acceptance
• Intensified domestic and overseas competition leading to market share decline
• Rising R&D, material, and packaging costs squeezing profit margins

What to watch

• 2026 actual revenue and gross margin performance
• Delivery progress of C600 and C700 AI GPUs
• Growth trends in government and enterprise orders