Taiwan-based chip company MediaTek is experiencing its best-ever quarter. Investors are betting that its transformation into the AI chip sector will help the company break free from the valuation compression caused by the prolonged downturn in its traditional mature businesses. Since the end of March this year, MediaTek’s stock has risen by a cumulative 174%, with its market capitalization increasing by over $130 billion, making it one of the best-performing stocks in Asian markets.
The growing optimism surrounding MediaTek stems from the belief that its ASIC (Application-Specific Integrated Circuit) design cooperation agreement with Google marks the launch of a new growth engine. ASICs offer large technology companies lower costs and greater customization potential, and as AI increasingly focuses on everyday applications, these chips are gaining more attention. MediaTek’s partnership with Google has fueled market expectations that the company will win more business and capture market share from Broadcom, a leader in this field.
Mobile phone chips still account for about half of MediaTek’s revenue, making the company vulnerable to weakness in the smartphone market. However, as MediaTek actively expands its AI business, optimistic investors have set their sights further into the future.
MediaTek’s breakthrough lies precisely in ASICs. These chips are cheaper than Nvidia’s (NVDA) GPUs used for AI training. Over the past few months, MediaTek’s stock price has outperformed both Broadcom and its Taiwan-based AI ASIC competitors, Alchip Technologies and Global Unichip.
To strengthen its AI business, MediaTek is ramping up hiring. The company expects its AI-related revenue to reach approximately $2 billion this year, with further growth anticipated by 2027. In May of this year, MediaTek projected it could capture up to 15% of an ASIC market expected to be worth $80 billion next year. Kevin Wang, an analyst at Mizuho Securities Asia, believes this target may even be conservative, predicting that MediaTek will achieve the high end of its market share goal by 2027, or potentially exceed expectations. He also noted that Google (GOOG) is currently a leading hyperscaler using AI ASICs, indicating that MediaTek is poised for significant market share growth, and that the company is in discussions with other potential clients. Phelix Lee, an analyst at Morningstar, pointed out that while MediaTek is a latecomer to this field, it typically demonstrates greater flexibility in meeting client needs.
MediaTek’s stock hit an all-time high at the end of May, driving its valuation to historical peaks. Its forward price-to-earnings ratio for the next 12 months currently stands at 45 times, compared to 24 times for Broadcom (AVGO) and 21 times for TSMC (TSM). Nevertheless, since early February, consensus earnings per share estimates for MediaTek over the next year have been revised upward by more than 30%. Among analyst ratings, there are 29 “buy” ratings, two “hold” ratings, and no “sell” ratings. Kevin Wang of Mizuho Securities stated that “incremental AI businesses,” including chips for wearable devices such as smart glasses, could drive MediaTek to achieve annual earnings growth of over 60% in 2027 and 2028. He believes that given such upside potential, the current stock price is not expensive.
