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(Bloomberg) — The increased collaboration with Nvidia Corp. has fueled investor optimism about MediaTek Inc’s AI growth potential. to a new high, putting its shares on track for their first record high in seven months.
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Shares rose a point from their June peak this week after the Taiwanese chip designer announced a tie-up with Nvidia on an AI personal computer chip. In addition to the companies’ existing partnership in automotive technology, the news helped fuel expectations of further gains in the stock after it has more than doubled in the past two years.
Best 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 for more to come show that “MediaTek has great opportunities in a diversified set of businesses,” he added.
MediaTek is also benefiting from an improved outlook for smartphone chips, which still account for more than half of its revenue. That helped push the consensus estimate for MediaTek’s December quarter sales by about 5 percent over the past few months, data compiled by Bloomberg show.
While the new PC chip is expected to deliver little in terms of near-term sales given its niche customer base, overall hopes for the company’s AI-related business are high. Much of the excitement is related to the potential 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 a long-term increase as MediaTek expands into a broader market alongside Nvidia.”
Bears have retreated into the stock, with no sell ratings since May. Analysts have rushed to keep up with the rally, sending the average price target up 47% in the past year.
Reflecting the growing positive sentiment, the stock is currently trading at 20 times forward estimated earnings, above the five-year average of 16 times. That’s more expensive than 19 times for key foundry Taiwan Semiconductor Manufacturing Co., but ranks next to multiples of more than 30 for Nvidia and Broadcom Inc.
