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AI Chip Boom Fuels Taiwan Firm’s 40% Rally, Beating Qualcomm and Peers

(Bloomberg) -- A five-month rally in MediaTek Inc. looks set to extend as booming demand for smartphones and a promising new AI chip brighten the company’s outlook.

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The Taiwanese tech firm’s stock has soared almost 40% since the end of June, outperforming a 2% advance in the Philadelphia Stock Exchange Semiconductor Index and a 7% rise in its US-based rival Qualcomm Inc. The gains have been fueled by robust appetite for mobile devices that utilize the company’s chips, especially in China.

The buzz surrounding MediaTek casts a spotlight on growing competition between semiconductor firms that are exploiting the use of AI to grab a larger share of the smartphone business. Investors see the Taiwanese firm’s Dimensity 9300 chip as a game-changer that will help it to steal a march over Qualcomm, the current leader in the high-end mobile market.

The bullishness surrounding MediaTek’s shares is growing. Analysts have boosted estimates for the company’s earnings per share by 13% since the end of July, while short interest on the stock has fallen from a June peak. They have also lifted its estimated price target by 27% since a July low.

MediaTek’s “valuation relative to its growth prospect into next year still looks attractive,” said Robert Mumford, an investment manager at GAM Hong Kong Ltd. “The handset cyclical recovery and MediaTek’s new system-on-chip — a cutting edge product released at the right time — plus potential AI product rollout, are all tailwinds.”

A lot of the optimism is centered around the Dimensity 9300 chip, which is a direct competitor of Qualcomm’s Snapdragon 8 Gen 3. Both firms are racing to unleash AI technology on devices, part of the so-called “edge AI” phenomenon that multiple Wall Street banks say will be a key investing theme heading into 2024.

“Dimensity 9300 is the most powerful mobile system-on-chip and has started to gain traction with Vivo’s new phone,” Morgan Stanley analysts including Charlie Chan and Daisy Dai wrote in a note. The bank expects MediaTek’s market share in the flagship smartphone segment to increase from 20% in 2023 to 30%-35% in 2024, or up from 13 million units to around 20 million.

The Dimensity 9300 chip is designed to address more complex workloads of new generative AI and gaming applications and its launch follows several earlier designs which failed to excite investors. Chinese smartphone Vivo X100, which was released this month, is the first model to use the chip, and this will be followed by the OPPO Find X7 series.

The stock is trading at about 17 times forward estimated earnings, roughly in line with its five-year average. With a market capitalization of over $47 billion, MediaTek ranks as the the island’s second-largest listed company, after only Taiwan Semiconductor Manufacturing Co Ltd.

Smartphone Boom

The company’s sales are expected to grow 14% this quarter from last year, snapping four straight quarters of year-on-year decline, according to data compiled by Bloomberg.

MediaTek said in its earnings call that its inventory has fallen for five straight quarters and the days of inventory reached a healthy level of 90 at the end of the third quarter. Mobile phone sales, which contributed about half of the firm’s revenue in the three months through September, gained 19% on quarter, thanks to restocking demand and new 4G and 5G launches, management said.

The rally in MediaTek’s shares also reflects the recovery in China’s smartphone industry, which registered double-digit growth in October. Phone sales in the world’s biggest mobile market were up 11% in the first four weeks of last month compared to the same period a year ago, according to Counterpoint Research data.

Tech Chart of the Day

Apple Inc. briefly breached $3 trillion in market value as tech stocks extended their rally early last week. The world’s most valuable firm is the only publicly-listed company to have achieved this milestone. Software giant Microsoft Corp. has been inching close to the elusive level, rising about 57% this year to a market value of $2.8 trillion as of last close. Both stocks were fluctuating in early trading on Monday.

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  • Black Friday shoppers spent a record $9.8 billion online in the US, Adobe Analytics reported, offering a positive sign for retailers facing lackluster sales forecasts for the holiday season.

  • Battery giants are starting to put their money on new sodium-based technology, a sign that there could be yet another shakeup in the industry that’s crucial for the energy transition.

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--With assistance from Subrat Patnaik.

(Updates to add stock moves to Tech Chart of the Day section.)

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