JPMorgan: MediaTek Inc. — Can High TPU Expectations Be Met with Flawless Execution? Core EPS Declines, Maintain Neutral
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JPMorgan maintains a Neutral rating on MediaTek despite elevated market optimism surrounding TPU shipment volumes for 2027 and 2028. While the stock recently rallied 20%, JPMorgan highlights unfavorable risk-reward dynamics driven by execution challenges, competitive pressures, and Google's anticipated shift to a full CoT model, which could erode design service profitability. The core business is deteriorating further in 2026, with smartphone SoC shipments projected to decline 15% due to rising memory costs and weak Chinese brand demand. Gross margins may fall below 45% for the first time since 2021, pressured by Qualcomm's pricing competition and specification downgrades. The 2026 EPS estimate is reduced by 6% to TWD 63.12, while the 2027 EPS estimate is raised by 7% to TWD 86.25. Based on a sum-of-the-parts valuation, the December 2026 target price increases from TWD 1,260 to TWD 1,525. The TPU project (Zebrafish) is expected to ship 400,000 units in 2026 and roughly 1.5 million in 2027, falling short of bullish market expectations of 2-2.5 million units. Progress with a second CSP customer remains slow, and the Nvidia GB10 collaboration has seen underwhelming order volumes. Automotive ASIC contributions are delayed until late 2028 or 2029.