AI chip boom fuels MediaTek’s 40% rally, beating Qualcomm and peers

TAIPEI - A five-month rally in MediaTek looks set to be extended as booming demand for smartphones and a promising new artificial intelligence (AI) chip brighten the company’s outlook.

The Taiwanese tech firm’s stock has soared almost 40 per cent since the end of June, outperforming a 2 per cent advance in the Philadelphia Stock Exchange Semiconductor Index and a 7 per cent rise in its United States-based rival Qualcomm.

The gains have been fuelled by robust appetite for mobile devices that utilise the company’s chips, especially in China.

The buzz surrounding MediaTek casts a spotlight on growing competition between semiconductor firms that are exploiting the use of AI to grab a larger share of the smartphone business.

Investors see the Taiwanese firm’s Dimensity 9300 chip as a game changer that will help it to steal a march on Qualcomm, the current leader in the high-end mobile market.

The bullishness surrounding MediaTek’s shares is growing. Analysts have boosted estimates for the company’s earnings per share by 13 per cent since the end of July, while short interest on the stock has fallen from a June peak.

They have also lifted its estimated price target by 27 per cent since a July low.

A lot of the optimism is centred around the Dimensity 9300 chip, which is a direct competitor to Qualcomm’s Snapdragon 8 Gen 3.

Both firms are racing to unleash AI technology on devices, part of the so-called “edge AI” phenomenon that multiple Wall Street banks say will be a key investing theme heading into 2024.

“Dimensity 9300 is the most powerful mobile system-on-chip and has started to gain traction with Vivo’s new phone,” Morgan Stanley analysts wrote in a note. The bank expects MediaTek’s market share in the flagship smartphone segment to increase from 20 per cent in 2023 to 30 per cent to 35 per cent in 2024, or up from 13 million units to around 20 million.

The Dimensity 9300 chip is designed to address the more complex workloads of new generative AI and gaming applications, and its launch follows several earlier designs that failed to excite investors.

Chinese smartphone Vivo X100, which was released in November, is the first model to use the chip and this will be followed by the Oppo Find X7 series.

The stock is trading at about 17 times forward estimated earnings, roughly in line with its five-year average.

With a market capitalisation of more than US$47 billion (S$62.7 billion), MediaTek ranks as the island’s second-largest listed company, after Taiwan Semiconductor Manufacturing Company.

The company’s sales are expected to grow 14 per cent this quarter from 2022, snapping four straight quarters of year-on-year decline, according to data compiled by Bloomberg.

MediaTek said in its earnings call that its inventory has fallen for five straight quarters.

Mobile phone sales, which contributed about half of the firm’s revenue in the three months to September, gained 19 per cent on quarter, thanks to restocking demand and new 4G and 5G launches, management said.

The rally in MediaTek’s shares also reflects the recovery in China’s smartphone industry, which registered double-digit growth in October.

Phone sales in the world’s biggest mobile market were up 11 per cent in the first four weeks of October compared with the same period in 2022, according to statistics from Counterpoint Research. BLOOMBERG