(Bloomberg) — Growing collaboration with Nvidia Corp. has fueled investor optimism about MediaTek Inc.’s artificial intelligence growth potential. to a new high, putting its shares on track to achieve their first record high in seven months.
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The stock rose to its highest level in June this week after the Taiwanese chip designer announced a partnership with Nvidia on an artificial intelligence-powered personal computer chip. On top of the companies’ existing partnership in auto technology, the news helped fuel expectations for further gains in the stock after it has more than doubled in the past two years.
MediaTek, known for its key role in phone supply chains, is also now “very well positioned for the evolution of AI technology”, said Robert Mumford, investment director at Gam Hong Kong Limited. He added that projects with Nvidia and expectations for more to come show that “MediaTek has significant opportunities across a diverse business portfolio.”
MediaTek is also benefiting from the improving outlook for smartphone chips, which still account for more than half of its revenue. This has helped lift the consensus estimate for MediaTek’s sales in the December quarter by about 5% over the past few months, according to data compiled by Bloomberg.
While the new PC chip is expected to provide little in the way of sales in the near term given its niche customer pool, overall hopes for the company’s AI-related business are high. Much of the excitement is tied to the possibility of application-specific integrated circuits (ASICs) for data centers, Mumford said.
MediaTek’s expertise in low-power processors, Wi-Fi and multimedia “complements Nvidia’s capabilities well,” BofA Securities analysts including Brad Lin wrote in a note. “This sets the stage for long-term upside as MediaTek expands into a broader market with Nvidia.”
The bearish move on stocks has subsided, with no sell reviews since May. Analysts were quick to catch up to the rally, sending the average price target up 47% in the past year.
Reflecting the growing positive sentiment, shares are currently trading at 20 times forward estimated earnings, above the five-year average of 16 times. That’s more than 19 times more expensive than major foundry Taiwan Semiconductor Manufacturing Co., but pales next to more than 30 times more expensive for the likes of Nvidia and Broadcom Inc.
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