ASX Will Gain From Second Source Role Amid Measured CoW Expansion

Analysts have raised their price target on ASE Technology to NT$260 from NT$150, citing expectations that TSMC's measured CoW capacity expansion will lead more AI chip customers to seek ASE as a key secondary supplier.

Analyst Commentary

Bullish analysts view the raised price target as a reflection of ASE Technology's strengthened medium term growth outlook, underpinned by rising demand for advanced CoW packaging from AI chipmakers seeking diversification from TSMC.

They note that the company is increasingly positioned as a strategic secondary supplier in high value AI packaging, which could support multiple expansion if ASE executes well on capacity ramp up and yield optimization.

Bullish Takeaways

Bullish analysts see TSMC's measured CoW capacity expansion as a structural tailwind that funnels incremental AI packaging demand toward ASE Technology. This is viewed as supportive for revenue visibility over the next several years.
The move to a higher price target is seen as justified by an improving mix toward higher margin advanced packaging, which could drive better than previously expected earnings growth.
Analysts highlight ASE's role as a key second source for leading AI chip customers. They argue this strengthens its bargaining power and underpins a more favorable long term valuation framework.
Upgrades to Buy are interpreted as indicating increasing confidence that ASE can execute on capacity additions and technology ramps. According to these analysts, this could reduce the risk premium that previously capped the stock's multiple.

Bearish Takeaways

Bearish analysts remain cautious that ASE's growing dependence on AI related CoW demand could expose results to cycles in AI infrastructure spending and customer inventory digestion.
There is lingering concern that any acceleration in TSMC's own CoW expansion or aggressive pricing could compress ASE's margin upside and limit the sustainability of recent valuation gains.
Execution risk around scaling advanced packaging capacity, including potential yield or timeline setbacks, is seen as a key factor that could prevent the company from fully realizing the assumptions embedded in the higher price target.
Some analysts warn that competition from other packaging providers over time could dilute ASE's second source advantage. In their view, this creates uncertainty around longer term earnings power.

Valuation Changes

Fair Value, edging down slightly, moves from 65.00 to 64.72, implying a marginally lower intrinsic value estimate for ASX.
Discount Rate, rising modestly from 7.72 percent to 7.79 percent, reflects a slightly higher implied risk profile or required return.
Revenue Growth, ticking up fractionally from 4.82 percent to 4.82 percent, suggests a near unchanged but very slightly improved long term top line outlook.
Net Profit Margin, easing from 42.86 percent to 42.45 percent, indicates a small downward revision to expected profitability levels.
Future P/E, nudging higher from 28.74x to 28.94x, points to a modestly richer valuation multiple being applied despite the small fair value adjustment.

Growth in technology and data services, alongside market participation, supports diversified and recurring income, driving margin and earnings stability.
Technology modernization and regulated pricing enhance operational efficiency and net profit stability, mitigating risks from competition and regulatory changes.
Rising costs, regulatory scrutiny, execution risks, increased competition, and industry shifts threaten ASX's profit margins, revenue growth, and long-term market dominance.

Catalysts

About ASX

Operates as a multi-asset class and integrated exchange company in Australia and internationally.What are the underlying business or industry changes driving this perspective?

Strong growth in operating revenue from markets, data, and securities/payments businesses, combined with continued product and data innovation (e.g., new debt market and trading activity data products, accelerated technology modernisation, launch of scalable infrastructure-as-a-service solutions), positions ASX to capture ongoing revenue growth from increased digitization and financialization of the economy-particularly as retail and institutional participation rises.
Positive momentum in net new capital quoted and increased IPO and secondary listing activity, supported by growth in Australian household wealth and superannuation assets, suggest sustained upward pressure on trading volumes and listing revenues as long-term domestic capital pools expand, translating into higher recurring revenues.
Expansion and demand in high-margin technology and data offerings-driven by appetite for analytics, connectivity, and market information from both domestic and global market participants-provides opportunity for recurring, diversified non-transactional income, supporting overall margin expansion and earnings stability.
Progress on the multi-year technology modernization road map, including the upcoming go-live of the new CHESS settlement system, underpins operational efficiency, risk management, and resilience, which should lower costs, improve customer experience, and ultimately expand net margins over the medium term.
Implementation of regulated infrastructure pricing models (building block approach) for core clearing/settlement business provides predictable and stable targeted returns on allocated capital, limiting downside margin risk from potential fee competition or regulatory intervention, and supporting long-term net profit stability.

ASX Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming ASX's revenue will grow by 4.9% annually over the next 3 years.
Analysts assume that profit margins will shrink from 45.0% today to 42.5% in 3 years time.
Analysts expect earnings to reach A$547.2 million (and earnings per share of A$2.85) by about September 2028, up from A$502.6 million today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 29.5x on those 2028 earnings, up from 23.7x today. This future PE is greater than the current PE for the AU Capital Markets industry at 21.6x.
Analysts expect the number of shares outstanding to grow by 0.22% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 7.62%, as per the Simply Wall St company report.

ASX Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Rising cost pressures-particularly from technology, regulatory compliance, and project-related headcount-are driving expense growth well above inflation (guidance of 8–11% core business expense growth for FY26, and 14–19% including ASIC inquiry costs), which could compress net profit margins and limit earnings growth if revenues do not keep pace.
Intensifying regulatory scrutiny, highlighted by the ongoing ASIC compliance assessment and inquiry, could lead to recommendations or requirements for costly further investment in risk management, governance, and capability, or even tighter oversight and fee regulation, negatively impacting both costs and revenue flexibility in the long term.
Execution risk remains high around the ongoing technology modernization and CHESS replacement programs, with management admitting the business is "not where we want to be" on operational risk and resilience; delays or failures in key projects could increase costs, damage reputation, and potentially lead to client attrition or market share loss, directly hurting revenues and margins.
Competitive pressures are escalating, especially with the potential entry of Cboe Australia as a listings market and the broader choice of global and domestic exchanges for new listings and capital; this could erode ASX's historic listing fee revenues and force more aggressive pricing or incentives, impacting revenue growth from its listings business.
Fee compression and industry-wide shifts, such as the migration of activity to lower-cost alternatives, increased digitalization, and the threat from alternative financial infrastructure or decentralized platforms, put long-term pressure on ASX's ability to sustain high margins and premium valuation, raising risks to both top-line revenue and recurring non-transactional income streams.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of A$66.512 for ASX based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$77.0, and the most bearish reporting a price target of just A$54.05.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$1.3 billion, earnings will come to A$547.2 million, and it would be trading on a PE ratio of 29.5x, assuming you use a discount rate of 7.6%.
Given the current share price of A$61.26, the analyst price target of A$66.51 is 7.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
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.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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