The surge in demand for artificial intelligence (AI) chips has propelled Taiwan’s MediaTek Inc (MDTKF) on a five-month rally, with the stock gaining over 40% since June’s end and an impressive 51% year-to-date. This performance significantly outpaces the +2% gain in the Philadelphia Stock Exchange Semiconductor Index ($SOX) and the +7% gain in U.S. rival Qualcomm (NASDAQ:QCOM). MediaTek’s robust momentum is attributed to the increasing demand for mobile devices equipped with the company’s AI chips.
MediaTek’s strategic use of AI technology positions it to secure a larger stake in the smartphone market. The recently unveiled Dimensity 9300 chip is considered a game-changer that could challenge Qualcomm’s dominance in the high-end mobile market. Analysts have responded by raising earnings per share estimates for MediaTek by +13% since the end of July, accompanied by a decline in short interest on the stock from its peak in June. Furthermore, analysts have increased their price targets on MediaTek by +27% from a low in July.
GAM Hong Kong Ltd. is optimistic about MediaTek’s medium-term outlook, highlighting its attractive valuation relative to growth prospects and the potential impact of its new system-on-chip, the Dimensity 9300. The chip, positioned as a cutting-edge product released at an opportune moment, is expected to drive MediaTek’s market share growth. Additionally, MediaTek’s rush orders with foundries to produce the Dimensity 9300 chips, coupled with a partnership with Meta Platforms for augmented reality (AR) smart glasses, underscore the company’s strong design capabilities in smart devices.
The Dimensity 9300 chip, directly competing with Qualcomm’s Snapdragon Gen 3 chip, is tailored to handle the more complex workloads of new generative AI and gaming applications. The recently released Vivo X100 in China, the first smartphone to utilize this chip, has further amplified expectations. Morgan Stanley asserts that the Dimensity 9300 is the most powerful mobile system-on-chip, projecting MediaTek’s market share in the smartphone market to rise from 20% in 2023 to 30%-35% in 2024, translating to an increase from 13 million units to around 20 million.
In Q3, mobile phone sales, contributing about half of MediaTek’s revenue, surged by +19% quarter-on-quarter. The company reported an +11% year-on-year increase in smartphone sales in China, the world’s largest mobile market, for October. Projections suggest that MediaTek’s sales will grow by +14% in Q4 compared to the previous year, marking a reversal from four consecutive quarters of year-on-year declines. MediaTek’s valuation, standing at about 17 times forward estimated earnings and close to its five-year average, places it as the second-largest listed company in Taiwan, with a market capitalization of $47 billion, second only to Taiwan Semiconductor Manufacturing Co.
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Author Faith Yakubu 
