MediaTek (2454): Morgan Stanley raises MediaTek's target to NT$6,188 as TSMC CoWoS support strengthens its 2028 TPU outlook

Overview

Morgan Stanley maintains a bullish view on MediaTek, arguing that TSMC's willingness to provide CoWoS capacity reduces a major production risk for Google-related 2028 TPU programs. The target price is raised to NT$6,188 on higher 2028 earnings assumptions, supported by stronger TPU shipments and an assumed contribution from a second cloud AI ASIC customer.

Core views

The central debate is whether MediaTek can meet Street expectations for 2028 TPU production given an expected shortage of Intel EMIB-T substrates. Morgan Stanley forecasts Google TPU v9 demand of 3 million units in 2028, while previously expecting only about 2 million EMIB-T substrates, equivalent to 40–45k wafer-equivalent capacity. Its supply-chain checks indicate that TSMC and MediaTek are engaging to meet Google demand, with TSMC CoWoS-L potentially providing a second source. The report now assumes CoWoS-L supports 0.5 million TPU v9 units and EMIB-T supports 2.5 million, making its 3 million-unit 2028 target appear achievable. CoWoS-L has a higher cost because of its larger reticle size and the need for three additional photomask layers for the RDL interposer connection, but Morgan Stanley believes Google is willing to absorb the incremental dual-sourcing cost, helping MediaTek sustain gross margin. The revised TPU outlook includes both 3nm Zebrafish and 2nm Humufish programs. Morgan Stanley assumes roughly 500,000 2nm TPU units move through CoWoS production in 2028, while 3nm TPU volume reaches about 2 million units, above its previous 1 million-unit assumption. This leads it to raise its 2028 TPU revenue assumption to US$51.5 billion. The report also sees potential upside to blended 2nm TPU pricing: it estimates a US$12,000–20,000 ASP range and models US$13,000, citing the more feature-rich TriggerFish inference design, including an upgraded I/O die, an additional simulation die and an HBM4e controller. However, EMIB-T substrate yield remains the key risk to volume. Although MediaTek's 180,000 CoWoS-S booking could imply about 3.6 million TPU v8t units in 2027, Morgan Stanley retains a 3 million-unit 2027 forecast because of potential ABF substrate shortages. A second analytical thread is the prospect of a new cloud AI ASIC customer. Morgan Stanley does not expect MediaTek to win Tesla's AI6 edge-AI chip program, which it views as better suited to GUC's 10%–25% margin profile. MediaTek instead targets a 30%–35% margin profile through its IP and design capabilities. The report sees an increasing probability that MediaTek wins a cloud AI ASIC project from an AI-focused cloud service provider or AI lab through its Nvidia/NVLink Fusion partnership; it notes prior interest from SpaceX and an AI lab customer and says a decision could arrive in 4Q26. Morgan Stanley expects MediaTek's AI ASIC-related revenue to reach US$13.5 billion in 2027 and US$54 billion in 2028, representing about 38% and 72% of total revenue, respectively. For a second cloud customer, Morgan Stanley assumes MediaTek supplies subsystem builds rather than the XPU itself. It models an initial 2028 contribution based on approximately 100,000 subsystem units at a US$25,000 ASP, or US$2.5 billion of revenue, including HBM consignment, known-good compute dies and chiplets. The report expects ASICs to remain operating-margin accretive. It models roughly 35% gross margin for 2nm TPUs versus about 40% for 3nm TPUs, while expecting operating margins of around 20%–25%, above the smartphone unit's 15%–20% range. Morgan Stanley raises 2028 net sales, operating profit, reported net income and reported basic EPS estimates by 11%, to NT$2,315.233 billion, NT$630.311 billion, NT$545.288 billion and NT$342.37, respectively. Its 2026 and 2027 estimates are largely unchanged. The report acknowledges that smartphone conditions remain weak: China smartphone demand may not recover in 2027 while mobile DRAM prices remain elevated, and expected 3Q26 revenue outperformance is attributed to customer pull-in ahead of a SoC price increase rather than demand improvement. Still, it sees 2028 as potentially strong for smartphone SoCs if AI smartphones become a killer application, while AI ASIC demand, particularly from Google TPU programs, offsets near-term handset headwinds. The target price rises from NT$5,588 to NT$6,188 under Morgan Stanley's residual income model. The change is driven mainly by higher earnings forecasts, while valuation assumptions remain unchanged: 9.2% cost of equity, based on beta of 1.2, a 2% risk-free rate and a 6% risk premium; 12% intermediate growth; and 3.0% terminal growth. The report raises its bull-case value from NT$7,675 to NT$8,500 and its bear-case value from NT$2,845 to NT$3,150. It argues that the NT$6,188 target, equivalent to 42x 2027 EPS, is supported by strong TPU demand and that TPU upside is not fully reflected, despite expected gross-margin pressure in 2026 and 2027.

Analysis framework

Morgan Stanley combines Asia supply-chain checks with production-capacity and shipment assumptions for Intel EMIB-T and TSMC CoWoS, then translates expected TPU and subsystem volumes, ASPs and margins into earnings estimates. It values MediaTek using a residual income model and stress-tests the conclusion with bull, base and bear valuation scenarios.

Methodology notes

• Industry AnalysisSupply-demand framework

  TPU packaging capacity and substrate supply-demand analysis

  The report compares expected TPU demand with available EMIB-T and CoWoS capacity to judge whether MediaTek can produce its targeted 2028 volumes.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  Supply-chain checks across MediaTek, Google, TSMC, Intel, HBM and ABF substrates

  The analysis traces how packaging capacity, substrate yields and customer willingness to pay affect MediaTek's shipment volume, ASP and margins.

• Valuation methodsRIM (Residual Income Model)

  Residual income model

  Morgan Stanley derives its base-case target price from forecast equity, earnings and residual income using stated cost-of-equity and growth assumptions.

• Event-Driven and Behavioral Finance

  Bull, base and bear scenario valuation

  The report presents alternative values tied to differing operating and demand outcomes, with options-implied probabilities referenced for scenario-price outcomes.

Asset mapping & comparison

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

• MediaTek (2454.TW, 2454 TT)

  Primary covered company; expected beneficiary of Google TPU demand, TSMC CoWoS support and potential second cloud AI ASIC customer wins.

  Strengths

  Design-service IP and capabilities, growing TPU exposure, potential dual sourcing, and expected ASIC operating margins of around 20%–25%.

  Weaknesses

  Smartphone demand remains weak and gross margin is expected to decline in 2026 and 2027.

  Comparison

  Morgan Stanley views Tesla's AI6 program as better suited to GUC, while MediaTek targets a higher 30%–35% margin profile.

  Risks

  EMIB-T yields, ABF substrate availability, weak smartphone demand, competition and greater-than-expected margin dilution.

Key data

• Price targetNT$6,188.00Raised from NT$5,588.00; based on the residual income model base case.
• Current share priceNT$5,285.00Closing price on September 24, 2026; target implies 17% upside.
• 2028 TPU v9 volume3.0 million unitsAssumes 2.5 million units from Intel EMIB-T and 0.5 million from TSMC CoWoS.
• 2028 TPU revenueUS$51.5 billionRaised on stronger 3nm and 2nm TPU shipment assumptions.
• Second customer subsystem revenueUS$2.5 billion2028 assumption based on 100,000 units at a US$25,000 ASP.
• 2028 reported basic EPSNT$342.37Up 11% from the prior NT$308.25 estimate.
• 2028 net salesNT$2,315.233 billionUp 11% from the prior NT$2,083.124 billion estimate.
• Valuation assumptions9.2% cost of equity; 12% intermediate growth; 3.0% terminal growthKey residual income model assumptions are unchanged.

Impact & implications

The report concludes that dual sourcing through TSMC CoWoS and Intel EMIB-T reduces the perceived 2028 TPU production bottleneck, while a second cloud customer could add meaningful high-value subsystem revenue. Morgan Stanley expects AI ASIC demand to outweigh near-term smartphone weakness, though it also expects gross-margin dilution in 2026 and 2027.

Risks

• EMIB-T substrate yields could constrain TPU production volume despite the addition of CoWoS capacity.
• ABF substrate shortages remain the gating factor for the TPU bull case.
• China and emerging-market smartphone demand could deteriorate further, while an AI smartphone replacement cycle could be too weak to support cost pass-through.
• Greater competition, pricing pressure or market-share losses could hurt gross margin.
• New AI ASIC, IoT, automotive and edge-AI business development could progress more slowly than expected.

What to watch

• A potential second cloud AI ASIC customer decision in 4Q26.
• TSMC CoWoS and Intel EMIB-T capacity expansion and execution for 2027–28 TPU programs.
• EMIB-T substrate yields and ABF substrate availability.
• Google TPU demand and MediaTek's TPU shipment progression.
• China and emerging-market smartphone demand, AI smartphone replacement trends and MediaTek's ability to pass through costs.