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(Bloomberg) – Increased collaboration with Nvidia Corp. has taken investor optimism about MediaTek Inc.’s AI growth potential to new levels, putting the stock on track to hit its first record high in seven months.
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The stock climbed just shy of its June peak this week after the Taiwanese chip designer announced a collaboration with Nvidia to develop an AI PC chip. In addition to the companies’ existing partnership in the automotive technology space, the news helped fuel expectations for further gains in shares after more than doubling in the past two years.
Better known for its key role in the mobile phone supply chain, MediaTek is now also “very well positioned to develop AI technology,” said Robert Mumford, investment manager at Gam Hong Kong Limited. The projects with Nvidia and the expectation of further projects show that “MediaTek has great opportunities in a broad business area,” he added.
MediaTek is also benefiting from an improving outlook for smartphone chips, which still accounts for more than half of its sales. That helped the consensus estimate for MediaTek’s December quarter revenue rise about 5% in recent months, data compiled by Bloomberg show.
While the new PC chip is expected to bring in low sales in the near term due to its niche customer group, hopes for the company’s AI-related business overall 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 larger market alongside Nvidia.”
The bears have retreated on the stock and there have been no sell recommendations since May. Analysts have rushed to keep up with the rally, sending the average price target up 47% over the past year.
With growing positive sentiment, shares are currently trading at 20 times forward earnings, above the five-year average of 16. That’s more expensive than 19 times for key foundry major Taiwan Semiconductor Manufacturing Co., but pales next to the more than 30 times for companies like Nvidia and Broadcom Inc.
