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The artificial intelligence (AI) chip boom has fueled a 5-month-long rally in Taiwan’s MediaTek Inc (MDTKF). The stock is up more than +40% since the end of June and is up +51% so far this year, much better than the +2% gain in the Philadelphia Stock Exchange Semiconductor Index ($SOX) and the +7% gain in U.S. rival Qualcomm (QCOM). The sharp rally in MediaTek has been fueled by robust demand for mobile devices that utilize the company’s AI chips.
The craze surrounding MediaTek is its use of AI to grab a larger share of the smartphone business. MediaTek’s new Dimensity 9300 chip is seen as a game-changer that will help it grab market share from Qualcomm in the high-end mobile market. Analysts have boosted estimates for MediaTek’s earnings per share by +13% since the end of July, while short interest on the stock has fallen from a high in June. Analysts have also boosted their price targets on MediaTek by +27% from a July low.
Many analysts are upbeat about the medium-term outlook for MediaTek. GAM Hong Kong Ltd. said MediaTek’s “valuation relative to its growth prospect into next year still looks attractive, and the company’s new system-on-chip, a cutting-edge product released at the right time, plus potential AI product rollout, are all tailwinds.” Also, Morgan Stanley said MediaTek has placed rush orders with foundries to produce its Dimensity 9300 chips to capitalize on the AI applications of its new chip, while its partnership with Meta Platforms in Meta’s augmented reality (AR) smart glasses shows MediaTek’s strong design capability in smart devices.
MediaTek’s new Dimensity 9300 chip, a direct competitor of Qualcomm’s Snapdragon Gen 3 chip, is designed to address more complex workloads of new generative AI and gaming applications. China’s smartphone Vivo X100, which was released this month, is the first smartphone to use the chip. Morgan Stanley said the “Dimensity 9300 is the most powerful mobile system-on-chip” and expects MediaTeks’s market share in the smartphone market to increase from 20% in 2023 to 30%-35% in 2024, or up from 13 million units to around 20 million.
Mobile phone sales, which contributed about half of MediaTek’s revenue in Q3, rose +19% q/q. MediaTek reported that smartphone sales in China, the world’s biggest mobile market, were up +11% y/y in October. According to data from Bloomberg, MediaTek’s sales are expected to grow +14% in Q4 from last year, snapping four straight quarters of year-on-year declines. MediaTek’s valuation is about 17 times forward estimated earnings, close to its five-year average, and the company ranks as the second-largest listed company in Taiwan with a market capitalization of $47 billion, behind only Taiwan Semiconductor Manufacturing Co.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
