(Bloomberg) — Increased collaboration with Nvidia Corp. has pushed investor optimism over the AI growth potential for MediaTek Inc. to a new level, putting its shares on track for their first record high in seven months.
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The stock climbed to within a whisker of its June peak this week after the Taiwanese chip designer announced a tie-up with Nvidia on an AI personal computer chip. On top of the companies’ existing partnership in automotive tech, the news helped fueled expectations for further gains in the shares after they more than doubled in the past two years.
Known more for its key role in handset supply chains, MediaTek is now also “very well positioned for the AI tech evolution,” said Robert Mumford, an investment manager at Gam Hong Kong Limited. The projects with Nvidia and expectations for more to come show that “MediaTek has great opportunities across 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 revenue. This helped drive the consensus estimate for MediaTek’s December-quarter sales up about 5% over the past few months, Bloomberg-compiled data show.
While the new PC chip is expected to provide little in terms of near-term sales given its niche customer group, overall hopes for the company’s AI-related business are high. Mumford said much of the excitement is related to the potential for application-specific integrated circuits (ASICs) for data centers.
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 wider market together with Nvidia.”
Bears have retreated on the stock, with no sell ratings since May. Analysts have rushed to keep up with the rally, driving the average price target up 47% in the past year.
Reflecting the growing positive sentiment, the shares currently trade at 20 times forward estimated earnings, above the five-year average of 16 times. That’s more expensive than the 19 times for key foundry Taiwan Semiconductor Manufacturing Co., but it pales next to the 30+ multiples for the likes of Nvidia and Broadcom Inc.
