UBS Reiterates Buy on Montage Technology, Raises Target Price to HK$380

Overview

UBS published a research report reiterating its "Buy" rating on Montage Technology (6809.HK) and significantly raising its 12-month target price from HK$237.00 to HK$380.00. The core thesis of the report is that, with the rise of "Agentic AI" applications and the acceleration of China AI accelerator localization, Montage Technology—as a leader in memory interconnect chips and an emerging player in PCIe interconnect chips—will see significant earnings growth opportunities. The institution materially raised its 2026-2028 revenue and earnings forecasts and increased the valuation multiple, believing that the current share price has not fully reflected the company's structural growth potential in the AI wave.

Core views

Core Driver 1: Agentic AI ignites server CPU and memory interconnect demand. UBS notes that as Agentic AI applications become more widespread, server CPUs are becoming increasingly important, and expects the global server CPU total addressable market (TAM) to grow approximately fivefold from US$30 billion in 2025 to US$170 billion in 2030. This trend will directly drive demand for memory interconnect chips: on the one hand, the number of DDR channels per AI server CPU will increase from the current 12 to 16 next year; on the other hand, the penetration of high-bandwidth, low-latency MRDIMM solutions will increase, with a chip value per module 2-3 times that of traditional solutions. Driven by this, UBS expects Montage Technology's memory interconnect chip revenue CAGR for 2026-29 to accelerate from the previous 20% to 42%. Core Driver 2: China AI accelerator localization and PCIe new product breakthroughs. In the China market, major cloud service providers (CSPs) have significantly increased capital expenditure since the second half of 2024, and domestic AI accelerator vendors have nearly doubled their revenue in 2025 and the first quarter of 2026, accelerating the localization substitution process. Montage Technology has made progress in the development of PCIe Gen6 Retimer and PCIe Switch, and is expected to expand overseas customers from 2027 onwards. UBS expects the company's PCIe interconnect chip revenue to surge from RMB 400 million in 2025 to RMB 3.7 billion in 2028, with a 2025-28 CAGR of 103%, and the revenue share of this business is expected to rise from 8% in 2025 to 21% in 2028. Profitability and valuation rerating. Benefiting from product mix optimization (higher proportion of high-margin MRDIMM) and declining R&D expense ratio due to scale effects, UBS expects Montage Technology's net margin to improve from 41.0% in 2025 to 52.4% in 2027. Based on this, the institution raised its 2026-2028 EPS forecasts by 11%-46%. On the valuation front, despite the share price having risen 52% year-to-date, UBS believes its 2027 forward PE of 58x, corresponding to a 2027-30 EPS CAGR of 45%, implies a PEG ratio of only 1.3x, which is attractive. Therefore, UBS raised its target PE multiple from 54x to 70x (corresponding to a PEG of 1.6x, in line with domestic peers), deriving the new target price of HK$380.

Analysis framework

UBS's analytical approach follows a logical chain of "macro trends → quantitative sub-sector analysis → company fundamentals validation → valuation reconstruction." First, through industry research, it confirms the multi-fold pull of "Agentic AI" on server CPU volume, and then breaks down the TAM drivers of memory interconnect chips (CPU shipments × channels per CPU × value per channel). Second, combining China cloud vendor capex data and domestic AI chip vendor revenue growth, it validates the surge in localized demand for PCIe interconnect chips. Next, it translates the above industry beta into company-specific alpha, specifically quantifying the revenue growth and margin changes of Montage Technology's product lines (memory interface, PCIe Retimer/Switch). Finally, it uses relative valuation (PE/PEG), comparing with domestic comparable companies' valuation levels, to argue that current valuation does not fully price in its high growth, and thus concludes with a target price increase.

Methodology notes

• Industry/Industrial Analysis FrameworkVolume-Price Breakdown

  Memory Interconnect Chip TAM Derivation Model

  The report breaks down the market size of memory interconnect chips into three factors: server CPU shipments, number of DDR modules per CPU (channel count), and chip value per module. This approach helps clearly identify whether value growth is driven by volume growth or technology upgrades (such as DDR5 sub-generation iteration and MRDIMM penetration).

• Valuation MethodPE/PEG valuation

  PEG Ratio for Assessing Growth Stock Valuation Reasonableness

  The report uses the PEG (price/earnings-to-growth) ratio to assess the valuation attractiveness of Montage Technology. By dividing the PE multiple by the EPS compound growth rate, it arrives at a PEG of 1.3-1.6x and compares it with domestic peers, demonstrating that although the absolute PE is high, the valuation remains reasonable given the high growth.

• Company Fundamental and Financial FrameworkOperating/Financial Leverage Analysis

  Scale Effects Driving Net Margin Expansion

  The report notes that as the interconnect chip business scales rapidly, the R&D expense ratio will decline due to economies of scale, while the proportion of high-margin products increases, jointly driving the net margin to jump from 41% to 52%. This is a typical manifestation of operating leverage in high-tech manufacturing.

Asset mapping & comparison

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

• Montage Technology (6809.HK / 688008.SS)

  Key beneficiary: As a leader in memory interconnect chips and an emerging supplier of PCIe interconnect chips, it directly benefits from increased AI server CPU adoption and localization of China AI accelerators.

  Strengths

  Industry standards setter (JEDEC board member), deep industry knowledge, strong R&D capabilities, and close relationships with key domestic partners.

  Comparison

  Compared with domestic peers, it holds a global leading position in memory interconnect, leads in PCIe new product progress, and its valuation PEG is in line with domestic peers but its growth is more certain.

  Risks

  Risk of an overall semiconductor industry downturn cycle.

Key data

• Target Price Change237.00港元 → 380.00港元Significantly raised, implying approximately 18% upside (based on current price of HK$321.60)
• EPS Forecast Revision Range11%-46%For the 2026-2028 forecast period
• Memory Interconnect Chip Revenue CAGR42%2026-2029 forecast, significantly accelerating from the previous 20%
• PCIe Interconnect Chip Revenue CAGR103%2025-2028 forecast, revenue increasing from RMB 400 million to RMB 3.7 billion
• Net Margin Forecast41.0% (2025) → 52.4% (2027E)Benefiting from product mix optimization and scale effects
• Target PE Multiple70xRaised from 54x, corresponding to a 1.6x PEG based on 2027-30 EPS CAGR of 45%

Impact & implications

The report believes that Montage Technology is at the confluence of multiple structural growth drivers. For investors, this means the company not only benefits from the increase in global AI capital expenditure, but is also deeply tied to the dividend from the localization of the China AI industry chain. The successful development and ramp-up of PCIe new products will open a second growth curve and reduce reliance on the single memory interface business. The upward revision of the valuation multiple reflects the market's shift in perception of the company from a "cyclical recovery" story to a "long-term high-growth" story.

Risks

• Overall semiconductor industry enters a downturn cycle
• Mass production progress of server CPU platforms supporting MRDIMM falls short of expectations
• Intensified competition in the PCIe Retimer chip market
• PCIe Switch R&D progress falls short of expectations

What to watch

• Sustainability of global and China AI capital expenditure
• Launch timing and penetration rate of new server CPU platforms (16-channel)
• Customer certification and shipment progress of PCIe Gen6 Retimer and Switch
• Adoption rate of MRDIMM solutions in AI servers