In a five-month rally that has surpassed all expectations, Taiwanese technology giant MediaTek has emerged as a powerhouse in the semiconductor industry. Bolstered by surging demand for smartphones and the promise of a groundbreaking new AI chip, the company’s stock has soared by nearly 40% since the end of June. This remarkable ascent outpaces the modest 2% increase in the Philadelphia Stock Exchange Semiconductor Index and even outshines the 7% uptick of its U.S.-based rival, Qualcomm. MediaTek’s meteoric rise is largely attributed to the robust appetite for mobile devices powered by its chips, particularly in the expansive Chinese market.
MediaTek’s remarkable journey underlines the intensifying competition among semiconductor firms, all vying for a larger slice of the smartphone industry by harnessing the power of artificial intelligence (AI). Investors are increasingly looking to MediaTek’s Dimensity 9300 chip as a game-changer that could propel the company past Qualcomm, the current leader in the high-end mobile market.
Growing bullish sentiment
Bullish sentiment surrounding MediaTek’s shares is on the rise. Analysts have raised their estimates for the company’s earnings per share by 13% since the end of July. Additionally, short interest in the stock has waned since peaking in June. Furthermore, analysts have adjusted their estimated price target for MediaTek, marking a 27% increase since hitting a low point in July.
Robert Mumford, an investment manager at GAM Hong Kong, highlights that MediaTek’s “valuation relative to its growth prospect into next year still looks attractive.” He cites several tailwinds propelling the company forward, including the recovery in the handset market, MediaTek’s groundbreaking system-on-chip (SoC) release, and the potential rollout of AI-related products.
Dimensity 9300 Chip: A game-changer
Much of the optimism surrounding MediaTek revolves around the Dimensity 9300 chip, a direct competitor to Qualcomm’s Snapdragon 8 Gen 3. Both companies are in a race to integrate AI technology into devices, part of the burgeoning “edge AI” trend that prominent Wall Street banks predict will be a key investment theme leading into 2024.
Morgan Stanley analysts, including Charlie Chan and Daisy Dai, describe the Dimensity 9300 as the “most powerful mobile system-on-chip” and highlight its traction with Vivo’s new phone. The bank anticipates that MediaTek’s market share in the flagship smartphone segment will rise from 20% in 2023 to a remarkable 30%-35% in 2024, representing an increase from 13 million units to around 20 million.
Designed to tackle more complex workloads, including new generative AI and gaming applications, the Dimensity 9300 chip has garnered significant attention. Chinese smartphone manufacturer Vivo’s X100, released this month, is the first model to incorporate this innovative chip, with the OPPO Find X7 series set to follow suit.
Solid financial position and growth
MediaTek’s stock currently trades at approximately 17 times forward estimated earnings, aligning with its five-year average. With a market capitalization exceeding $47 billion, the company ranks as Taiwan’s second-largest listed firm, trailing only Taiwan Semiconductor Manufacturing Co.
The company’s sales are projected to grow by 14% this quarter compared to the previous year, marking a rebound after four consecutive quarters of year-on-year decline. MediaTek reported during its earnings call that its inventory had declined for five consecutive quarters, reaching a healthy level of 90 at the close of the third quarter. Mobile phone sales, which constitute approximately half of the company’s revenue for the three months through September, experienced a robust 19% increase quarter-on-quarter. This growth was fueled by restocking demand and the introduction of new 4G and 5G models.
Rally reflects China’s smartphone industry recovery
MediaTek’s remarkable stock rally also mirrors the recovery of China’s smartphone industry, which achieved double-digit growth in October. According to Counterpoint Research data, phone sales in the world’s largest mobile market rose by 11% during the first four weeks of last month compared to the same period a year earlier.
MediaTek’s journey from strength to strength underscores the dynamic landscape of the semiconductor industry, particularly in the realm of AI-powered mobile chips. With the Dimensity 9300 chip poised to redefine the high-end mobile market and a strong financial position, MediaTek is positioned as a formidable player in the global tech arena. As demand for AI-enhanced devices continues to surge, MediaTek’s growth trajectory suggests that it is poised for an enduring period of success.
