Accelerating AI And HPC Trends Will Expand ASIC Opportunities

Key Takeaways

• Rapid expansion in advanced node and AI-related projects, along with strong design capabilities, is driving higher margins and positioning Alchip as a top industry player.
  
• Broadening client base among hyperscalers and geographic diversification are reducing risk and setting the stage for sustained, market-leading revenue growth.
  
• Heavy dependence on a few major customers and the high-tech sector, combined with rising competition, in-house chip design trends, and geopolitical risks, threatens margins and long-term growth.

Catalysts

Engages in the research and development, design, and manufacture of fabless application specific integrated circuits (ASIC) and system on a chip (SOC)in Japan, Taiwan, and China.

• Analyst consensus expects strong growth in HPC and AI-related design wins at advanced nodes, but the ramp of 3nm and future 2nm projects could far outpace expectations, with management signaling mass production, rapid tape-outs, and significant revenue contribution potentially at a scale similar or larger than prior generations, driving outsized topline growth and materially higher earnings from 2026 onward.
  
• While analyst consensus cites margin expansion from favorable sales mix and operational leverage, early signs suggest Alchip could achieve structurally higher gross margins as its mix shifts more rapidly to advanced nodes and high-value NRE contracts, with improving pricing power and lower cost engineering hubs outside China supporting a step-change in net margin profile.
  
• The current customer concentration risk is likely overstated, as Alchip is already deeply engaged in discussions with multiple North American hyperscalers and emerging accounts, positioning itself to secure additional design wins and new revenue streams as cloud and AI providers increasingly invest in custom silicon and seek alternatives to incumbent ASIC suppliers-this diversification could substantially de-risk and enlarge the long-term revenue base.
  
• Alchip's leading position in advanced package and chiplet design, together with early activity in 2nm and GAA technology, places it at the forefront of an industry-wide shift to custom, domain-specific ASICs-this anticipates multi-year design cycles and secular growth opportunities as silicon content per AI server and data center device surges, ultimately underpinning long-term visibility for revenue and earnings.
  
• Geopolitical realignment and de-risking of supply chains globally are catalyzing outsourced ASIC demand, and with Alchip's minimal China revenue, strategic workforce expansion in Asia, and strong partner ecosystem, the company is becoming a preferred choice for customers looking for secure, globally diversified chip design and production, which expands its accessible customer base and could yield sustained, above-market growth.

Alchip Technologies Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Alchip Technologies compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Alchip Technologies's revenue will grow by 36.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 12.9% today to 11.0% in 3 years time.
• The bullish analysts expect earnings to reach NT$14.6 billion (and earnings per share of NT$185.75) by about July 2028, up from NT$6.7 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 32.5x on those 2028 earnings, down from 41.5x today. This future PE is greater than the current PE for the TW Semiconductor industry at 24.3x.
• Analysts expect the number of shares outstanding to grow by 1.43% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.75%, as per the Simply Wall St company report.

Alchip Technologies Future Earnings Per Share Growth

Risks

• Alchip's revenue is highly concentrated in HPC applications, with 95 percent of revenue coming from this single segment, and future revenue growth hinges disproportionately on design wins with a very small number of major hyperscale customers-this customer concentration risks sudden and material revenue or earnings declines if a key customer shifts away or reduces orders.
  
• Industry trends reveal that major technology companies are increasingly pursuing in-house chip design, and although Alchip is currently securing projects, failure to maintain technological leadership or win new types of business could reduce both future revenue growth and profitability as the addressable external ASIC market shrinks.
  
• The rapid pace of advanced node transitions (from 7-nanometer to 5-nanometer, now 3-nanometer and 2-nanometer) significantly increases R&D and engineering resource requirements, which could pressure operating margins and earnings if Alchip is unable to manage project complexity and resource allocation profitably or if follow-on production volumes from new customers do not materialize.
  
• Geopolitical and regulatory risks, such as potential new US-China technology restrictions, continue to create uncertainty; while Alchip has reduced direct China exposure, persistent or escalated tensions and stricter regulations around export controls, data security, or supply chain sourcing could still impact access to markets, suppliers, and both revenue and net margins over the long-term.
  
• Intensifying competition from both international and domestic ASIC design houses could erode pricing power and lead to margin compression, especially if Alchip's leading-edge technology advantage narrows or if customers have more supplier options for advanced process nodes, directly weighing on future net margins and overall earnings growth.

Valuation

• The assumed bullish price target for Alchip Technologies is NT$4400.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Alchip Technologies's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NT$4400.0, and the most bearish reporting a price target of just NT$2480.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be NT$133.3 billion, earnings will come to NT$14.6 billion, and it would be trading on a PE ratio of 32.5x, assuming you use a discount rate of 8.8%.
• Given the current share price of NT$3430.0, the bullish analyst price target of NT$4400.0 is 22.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.