(Bloomberg) — The increased collaboration with Nvidia Corp. has boosted investor optimism about MediaTek Inc.’s AI growth potential. to a new level, putting shares on track for their first record high in seven months.
Most read from Bloomberg
The stock climbed within a stone’s throw of its June peak this week after the Taiwanese chip designer announced a partnership with Nvidia on an AI personal computer chip. On top of the companies’ existing partnership in automotive technology, the news helped fuel expectations for further gains in the shares after they more than doubled in the past two years.
Better known for its key role in mobile phone supply chains, MediaTek is now also “very well positioned for the evolution of AI technology,” said Robert Mumford, investment manager at Gam Hong Kong Limited. The projects with Nvidia and expectations that more will follow show that “MediaTek has great opportunities within a diversified business set,” he added.
MediaTek is also benefiting from an improved outlook for smartphone chips, which still account for more than half of its sales. This has helped push the consensus estimate for MediaTek’s December quarter revenue up about 5% in recent months, data compiled by Bloomberg shows.
While the new PC chip is expected to generate little revenue given its niche customer base, overall expectations for the company’s AI-related business are high. Mumford said much of the excitement is related to the potential of application-specific integrated circuits (ASICs) for data centers.
MediaTek’s expertise in low-power processors, Wi-Fi and multimedia “well complements Nvidia’s capabilities,” 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 together with Nvidia.”
The bears have retreated into the stock, with no sell recommendations since May. Analysts have rushed to keep up with the rally, pushing the average price target up 47% over the past year.
Reflecting the growing positive sentiment, the shares currently trade at twenty times forward earnings, above the five-year average of sixteen times. That’s more expensive than the 19 times for major foundry Taiwan Semiconductor Manufacturing Co., but it pales next to the 30+ multiples for companies like Nvidia and Broadcom Inc.