(Bloomberg) — A deeper collaboration with Nvidia Corp. has taken investor optimism about AI growth potential for MediaTek Inc. to a new level, putting its stock on track to hit its first record in seven months.
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Shares rose this week to within a whisker of their June high after the Taiwanese chip designer announced a partnership with Nvidia on an artificial intelligence 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 doubled in the past two years.
Known best 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 improving outlook for smartphone chips, which still account for more than half of its revenue. This helped push the consensus estimate for MediaTek’s December quarter sales up about 5% in recent months, data compiled by Bloomberg show.
While the new PC chip is expected to provide little in terms of near-term sales given its niche customer market, overall hopes are high for the company’s AI-related business. Mumford said much of the excitement is related to the potential of application-specific integrated circuits (ASICs) for data centers.
MediaTek’s expertise in low-power processors, Wi-Fi and multimedia “well complements Nvidia’s capabilities,” BofA Securities analysts including Brad Lin wrote in a note. “This sets the stage for long-term improvement as MediaTek expands into a broader market alongside Nvidia.”
Bears have pulled back on the stock, with no sell ratings since May. Analysts have been quick to keep pace with the rally, sending the average price target up 47% last year.
Reflecting the growing positive sentiment, shares are currently trading at 20 times estimated earnings, above the five-year average of 16 times. That’s more expensive than key foundry Taiwan Semiconductor Manufacturing Co.’s 19 times, but pales next to multiples of more than 30 from companies like Nvidia and Broadcom Inc.