(Bloomberg) — Increasing cooperation with Nvidia Corp. has fueled investor optimism over the growth potential of AI for MediaTek Inc. to a new level, putting its shares on track for their first record high in seven months.
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The stock climbed to within a whisker of its June high 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 the field of automotive technology, the news helped fuel expectations for further gains in the shares after they had more than doubled in the past two years.
Better known for its key role in handset 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 across a diverse business set,” he added.
MediaTek is also benefiting from a better outlook for smartphone chips, which still account for more than half of its revenue. This helped drive the consensus estimate for MediaTek's December quarter sales up about 5% over the past few months, according to data compiled by Bloomberg.
While the new PC chip is not expected to deliver much in the way of near-term sales given its niche customer group, overall hopes for the company's AI-related business 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 broader market alongside Nvidia.”
Bears have retreated on the stock, with no sell-offs since May. Analysts have rushed to keep up with the rally, driving the average price target up 47% in the past year.
Reflecting the growing positive sentiment, the shares currently trade at 20 times forward estimated earnings, above the five-year average of 16 times. That's more expensive than the 19 times for key foundry Taiwan Semiconductor Manufacturing Co., but it pales next to the 30+ multiples for the likes of Nvidia and Broadcom Inc.