Nvidia’s AI Chip partnership adds fuel to MediaTek’s Share Rally

(Bloomberg) — A partnership with Nvidia Corp. has boosted investor optimism for MediaTek Inc. It pushed the growth potential of AI to a new level, sending the shares to a record high for the first time in seven months.

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The stock hit June highs this week after the Taiwanese chip designer announced a tie-up with Nvidia on an AI personal computer chip. Beyond the companies’ partnership in automotive technology, the news fueled expectations for further gains in the stock after it has more than doubled in the past two years.

MediaTek, known for its key role in handset supply chains, is now “very well positioned for the evolution of AI tech,” said Robert Mumford, investment manager at Gam Hong Kong Ltd. “MediaTek has great opportunities in various business areas,” he said, as the projects with Nvidia and further expectations show.

MediaTek is still making more than half of its revenue with improved vision for smartphone chips. That helped push MediaTek’s December-quarter sales up nearly 5% over the past few months, according to data compiled by Bloomberg.

While the new PC chip is expected to offer little in the way of recent sales in terms of customer groups, overall expectations for the company’s AI-related business are high. Mumford says 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 “complements Nvidia’s capabilities well,” BofA Securities analysts, including Brad Lin, wrote in a note. “This sets the stage for long-term growth as MediaTek expands into the wider market with Nvidia.”

Bears have retreated on the stock, which hasn’t been rated a sell since May. Analysts have been quick to track the rally, raising their average price target 47 percent over the past year.

Reflecting the growing positive sentiment, the shares currently trade at 20 times forward earnings, above the five-year average of 16 times. That’s more than 19 times expensive for key Taiwanese semiconductor manufacturing companies, but next to 30+ multiples for companies like Nvidia and Broadcom Inc.

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