January 27, 2026 10:15 PM GMT Asia-Pacific Technology | Asia Pacific AI Supply Chain: TPU/ASIC updates; ICMS NAND demand calculation We sense that AI semi vendors have started securing critical 2027 components – T-Glass/ABF, HBM, and TSMC 3nm – (e.g., MediaTek's 3nm TPU). Downgrade Egis to EW, as its 2026 appears to be shaping up as a year of transition. ASIC – Volume upside for MediaTek's 3nm TPU project in 2027: In our Target Price Up report, we highlighted the supply chain's bull case of 6-7mn TPU units ...

Summary of Key Points from the Conference Call Industry Overview - Focus on the Asia technology (hardware) sector, particularly the AI supply chain, as a priority investment area for 1H26 due to its significant influence on earnings growth amid concerns over smartphone/PC demand and auto production recovery [2][12] Core Themes and Stock Recommendations 1. **AI Supply Chain Investment**: - Emphasis on investing in the AI supply chain, which is expected to drive earnings growth despite potential slowdowns in other sectors [2][12] - Anticipation of clearer benefits from AI for earnings in 2026, with no signs of slowdown heading into 2027 [12] 2. **Under-the-Radar AI Themes**: - Five notable themes identified: 1. **Power Consumption**: Opportunities in power supply, power rack products, capacitors, and power semiconductors. Companies to watch include Delta Electronics, Panasonic HD, Murata Mfg., Taiyo Yuden, and Renesas Electronics [6][25] 2. **Data Transmission**: Advancements in large-scale data transmission technologies, with companies like Fujikura and Mitsubishi Electric highlighted [6][25] 3. **Niche Components**: Price stabilization and increases in demand for components like MLCCs and substrates, with key players including Murata Mfg. and SEMCO [6][25] 4. **Physical AI Integration**: Companies like Hitachi and Mitsubishi Electric are leading in embedding AI into industrial applications [6][27] 5. **Software/Services Disruption**: Generative AI's potential to improve productivity in Japan's software industry, with Fujitsu and NEC as key players [6][27] 3. **High-Profile Sub-Sectors**: - Continued growth in foundry, memory, semiconductor production equipment, AI servers, and edge AI, with recommended stocks including TSMC, Samsung Electronics, and Hon Hai [30][31] Market Dynamics and Risks - **Top-Down Risks**: - Concerns regarding valuations, implementation risks, over-investment, monetization challenges, and funding sources, particularly with emerging players in the market [13] - **Bottom-Up Perspective**: - Fundamentals differ from the IT bubble of 2000, with a larger scale and longer timeline for AI infrastructure development, and sound supply chain management in Asian hardware [14][16] Technological Advancements - **Power Consumption Trends**: - Significant rise in power consumption for AI servers, with expectations for voltage increases to 800V and beyond, creating business opportunities for power-related products [33][38] - **Data Transmission Innovations**: - Transition to higher communication speeds (800-1.6Tbps) and co-packaged optics (CPO) expected to enhance industry value [58][59] Conclusion - The Asia technology sector, particularly the AI supply chain, presents substantial investment opportunities driven by technological advancements and evolving market dynamics. Key players and themes are positioned to benefit from these trends, while investors should remain cautious of potential risks associated with rapid market changes.

Summary of Key Points from the Conference Call Industry Overview - The focus is on Asia's logic semiconductor firms, with a robust growth forecast driven by cloud AI applications. Non-memory semiconductor revenue is expected to grow by **25% YoY in 2026**, following a **16% growth in 2025** [2][9]. Core Company Insights TSMC (Taiwan Semiconductor Manufacturing Company) 1. **Revenue Growth**: TSMC is projected to achieve **25% revenue growth** in USD terms for 2026, supported by strong demand for cloud AI products, particularly GPUs and ASICs [3][10]. 2. **Capex Increase**: Capital expenditures are expected to rise to **US$50 billion** in 2026, up from **US$42 billion** in 2025, to support leading-edge technology migrations [12][18]. 3. **Capacity Expansion**: TSMC's N3 capacity is forecasted to reach **170kwpm** by the end of 2026, up from **120kwpm** at the end of 2025, with tight utilization expected throughout the year [15][16]. 4. **Cloud AI Demand**: Cloud AI is anticipated to account for **35-40%** of N3 demand in 2026, with significant contributions from major clients like Nvidia and Google [16][18]. MediaTek 1. **TPU Production**: MediaTek's TPU efforts are expected to ramp up significantly, with sales projected to reach **US$0.8 billion** in 2026 and **US$4 billion** in 2027, driven by strong demand and potential upside in volume expectations [3][23]. 2. **Market Position**: The company is positioned to benefit from the growing market for cloud AI, with expectations of shipping around **1 million units** of TPU in 2027, with potential for much higher volumes [23][25]. Advanced Packaging and Testing 1. **CoWoS Capacity**: The industry is expected to see an **85% YoY increase** in CoWoS capacity in 2026, with TSMC's CoWoS capacity projected to reach **110kwpm** by Q3 2026 [4][28]. 2. **Technological Advancements**: Advanced packaging technologies are gaining traction, with Intel's EMIB also expected to ramp up production in H226 [4][28]. Stock Recommendations - Top picks include **TSMC**, **MediaTek**, and **ASE**, with buy ratings on several other companies such as **Aspeed**, **Hon Precision**, and **GlobalWafers**. Neutral ratings are given to **Vanguard**, **Realtek**, and **SMIC** [6]. Additional Insights - **Market Dynamics**: The semiconductor market is experiencing a shift, with mature foundries and OSAT expected to outgrow fabless companies in 2026 due to improved competition and pricing [5]. - **Silicon Wafer Supply**: Supply and demand for silicon wafers are expected to stabilize, with a more favorable pricing outlook despite some persistent oversupply [5]. - **Potential Risks**: Rising memory BOM costs could impact end demand for smartphones and PCs in 2026, posing a risk to overall market growth [5]. This summary encapsulates the key insights and projections from the conference call, highlighting the growth potential and strategic directions of major players in the semiconductor industry.

Summary of Key Points from the Conference Call Industry Overview - **Focus on AI Technology**: The conference highlights the dominance of AI in the technology sector, particularly in the Asia-Pacific region, with expectations for continued growth in AI logic and memory semiconductors and server supply chains due to constrained supply [3][6][9]. - **Concerns in Non-AI Segments**: There are significant concerns regarding the PC and smartphone markets, especially in mid- and low-tier segments, due to anticipated demand issues stemming from memory and processor cost pressures [3][6][9]. Core Insights and Arguments - **AI Sector Growth**: The AI thematic has driven a tech stock rally through 2024-25, with US tech and semiconductor valuations nearing dot-com peak levels. Continued involvement in AI trades is recommended for 2026, with expected consensus earnings estimate upgrades for Asia AI logic/memory semiconductors [3][6][9]. - **Supply Chain Dynamics**: The supply crunch in AI hardware and chips is expected to support further earnings estimate hikes. The demand for AI servers is projected to increase, with hyperscalers' capital expenditure plans showing potential for further upside [9][12]. - **Memory Market Outlook**: A triple super-cycle in the memory market (DRAM, NAND, and HBM) is anticipated to continue into 2027, benefiting from AI investments while supply increases remain limited [9][12]. Key Companies and Recommendations - **Top Picks in AI Logic and Memory Semiconductors**: - **TSMC (2330 TT)**: Rated Buy, with a target price indicating a 31.6% upside [19]. - **SK Hynix (000660 KS)**: Rated Buy, with a target price indicating a 56.1% upside [19]. - **Samsung (005930 KS)**: Rated Buy, with a target price indicating a 48.8% upside [19]. - **AI Component Sector**: - **EMC (2383 TT)**: Rated Buy, with a target price indicating a 13.9% upside [19]. - **Shengyi Technology (600183 CH)**: Rated Buy, with a target price indicating an 18.2% upside [19]. - **India IT Services**: Companies like Infosys, Cognizant, and eClerx are highlighted as top picks, all rated Buy, with expectations for marginally better revenue growth in FY26 [15][19]. Additional Important Insights - **Risks to Monitor**: Potential risks include chip/component overbooking and execution risks from aggressive data center investments by new AI startups [4][6]. - **Impact of Memory Price Hikes**: Memory price increases are expected to negatively impact demand for PCs and smartphones, particularly affecting lower-end models more severely than higher-end ones [9][12]. - **Sector-Specific Trends**: The conference also discusses trends in various sectors, including automotive semiconductors, intelligent vehicles in China, and robotics, with specific companies recommended for investment based on their market positions and growth potential [12][15][17]. Conclusion The conference call emphasizes the critical role of AI in shaping the technology landscape, with a strong recommendation for investors to focus on AI-related stocks while being cautious of potential risks in non-AI segments. The anticipated growth in the memory market and the strategic positioning of key companies present significant investment opportunities.

Investment Rating - The report reiterates a Buy rating on TSMC as the leading Cloud/Edge AI foundry [4] - ASE is also rated as a Buy due to its position as a key beneficiary of advanced packaging and testing [4] - GPTC is upgraded to a Buy with a new price target of NT$1,800, implying a 35% upside [4][22] Core Insights - TSMC's N3 capacity is forecasted to reach 170kwpm by the end of 2026, up from 120kwpm at the end of 2025 [1] - Cloud AI is expected to account for 35-40% of N3 demand in 2026, with smartphones and PCs making up 60-65% [1] - CoWoS capacity is anticipated to be tight in 2026, with TSMC likely to accelerate capacity expansion [2] - Demand forecasts for CoWoS have been raised significantly for Nvidia (13% increase), AMD (56% increase), and Broadcom [3] Summary by Sections N3 Foundry Supply-Demand Analysis - TSMC's N3 capacity is projected to increase to 170kwpm by end-2026 from 120kwpm at end-2025 [1] - Cloud AI products are expected to represent 35-40% of N3 demand in 2026, with other devices accounting for 60-65% [1] - N3 utilization is expected to be tight, particularly in Q4 2026 [1] CoWoS Capacity and Demand - CoWoS capacity is forecasted to reach 110kwpm by Q3 2026, with potential upside in late 2026 [2] - Demand for CoWoS from Nvidia is expected to reach 3 million units in 2026, with AMD's demand forecast raised by 56% [3] - Broadcom's CoWoS demand is projected to increase to 260-280k units in 2026, up from 90-100k in 2025 [3] Stock Recommendations - TSMC's capex for 2026/27 is raised to US$50bn/52bn from US$46bn/50bn, with a price target increase to NT$1,800 [4] - ASE is highlighted as a key beneficiary of advanced packaging and testing [4] - GPTC's long-term earnings CAGR is forecasted at 20% over 2027-29, with a significant market share in advanced packaging [22]

Summary of Semiconductor Industry Research Industry Overview - **AI Demand**: AI compute is projected to account for 37% of global semiconductor revenue by 2025, up from 10% in 2020. Data center investments by hyperscalers are expected to grow at a 24% CAGR, reaching US$1.2 trillion by 2030, which will drive high-performance computing (HPC) demand and sustain order backlogs for advanced nodes and packaging [1][2][3] - **Traditional Tech Devices**: Stabilization in units for traditional tech devices (smartphones, PCs, TVs) is noted, while automotive and industrial applications are beginning to recover. Healthy inventory levels suggest a potential reacceleration as edge AI technology proliferates [1] Supply Growth and Investment - **Foundry and OSAT Investment**: Foundry and OSAT (Outsourced Semiconductor Assembly and Test) investments are expected to accelerate through 2026-2027, with global foundry capex projected to grow 22% YoY to US$71 billion in 2026, driven by TSMC's expansion [2] - **Capital Intensity**: Front-end manufacturing capital intensity is expected to remain around 35%, while back-end capex is projected to grow 45% YoY to US$19 billion in 2026, with capital intensity rising to 24% [2] TSMC's Role - **Market Position**: TSMC is positioned as a core enabler of structural expansion in the semiconductor industry, with sales projected to grow at a 21% CAGR from 2025 to 2027. HPC/AI is expected to reach 70% of TSMC's sales by 2027 [3] - **Gross Margin and Operating Margin**: TSMC's gross margin and operating margin are expected to sustain at approximately 60% and 52%, respectively, due to a favorable business mix that offsets rising costs from capital expenditures [3] Valuation and Selectivity - **Valuation Bifurcation**: The semiconductor sector's valuation is expected to remain bifurcated, with AI-driven leaders at the upper end of their valuation range. TSMC is highlighted as a dominant technology player with potential for re-rating [4] - **Stock Picks**: Preferred stocks include TSMC, Chroma, GPTC, and MediaTek, while caution is advised for UMC, Globalwafers, and Novatek due to their exposure to mature tech products [4] Additional Insights - **HPC Market Growth**: The HPC semiconductor market is projected to grow at a CAGR of 31% through 2027, indicating strong demand for advanced computing solutions [22] - **Industry Capacity Trends**: The industry is seeing meaningful expansion in CoWoS (Chip on Wafer on Substrate) capacity from 2024, which is expected to unlock additional demand potential [27] - **Customer Revenue Contribution**: TSMC's top customers have consistently outperformed smaller ones, indicating a concentration of revenue among leading firms [18] This summary encapsulates the key points from the research on the semiconductor industry, focusing on AI demand, supply growth, TSMC's pivotal role, valuation dynamics, and market trends.

Summary of Key Points from the Conference Call Industry Overview - **Dominant Theme**: AI remains the dominant theme in the technology sector heading into 2026, with a notable lack of interest in non-AI segments [1][2] - **Investor Sentiment**: Overall sentiment is heavily skewed towards AI-related companies, with discussions focusing on the durability of AI demand and the implications for various companies in the supply chain [1][2] Company-Specific Insights TSMC (Taiwan Semiconductor Manufacturing Company) - **Revenue Growth**: TSMC is expected to see a revenue growth of 21.7% YoY in USD terms for 2026, following a strong 35% growth in 2025 [3][6] - **Utilization Rates**: The utilization rates for TSMC's 5nm and 3nm nodes are running at full capacity, indicating strong underlying demand primarily driven by AI [3] - **Capex Expectations**: There is a debate regarding TSMC's capital expenditure (capex) for 2026, with consensus expectations around US$50 billion, while the company models a more conservative US$44 billion due to cleanroom constraints [6][4] WinWay and MPI - **Market Position**: Both WinWay and MPI are highlighted as top stock picks due to their strong leverage to the Google TPU supply chain and expected revenue growth of 42% and 46%, respectively, into 2026 [11][12] - **Testing Demand**: WinWay is expected to benefit from the adoption of system-level testing (SLT), while MPI is set to ship its vertical probe card (VPC) to Google TPU in 2026 [2][11] Aspeed - **Server Demand**: Aspeed is anticipated to benefit from general server strength, with expectations of above-seasonal guidance for Q1 2026, driven by under-investment in server infrastructure by US cloud service providers [13][27] CoWoS Equipment - **Investor Sentiment**: There is a cautious sentiment around CoWoS equipment names, with limited earnings upside potential into 2026 and a focus on sectors with stronger earnings momentum [7][8] Additional Insights - **MediaTek**: Investor interest in MediaTek is low due to limited bottom-line growth and margin pressures, although potential catalysts exist for a revamp in 2027 [9] - **KYEC**: Elevated interest in KYEC is driven by Nvidia order visibility, although valuation concerns persist [10] - **ASE**: ASE is viewed positively due to continuous margin expansion from TSMC overflow business and high-margin opportunities in Fan-Out Chip-on-Substrate (FOCoS) [10] Risks and Considerations - **Market Risks**: Key risks include potential deterioration in end-demand recovery, slower customer node migrations, and intensifying competition in the semiconductor space [17][21][25][30] Conclusion - The technology sector, particularly in AI and semiconductor manufacturing, is poised for significant growth, with TSMC, WinWay, MPI, and Aspeed identified as key players. However, investors should remain cautious of market dynamics and potential risks that could impact growth trajectories.

Summary of Key Points from the Conference Call Industry Overview: Semiconductor Industry Revenue Growth - Overall semiconductor revenues increased by 28% year-over-year (YoY) in September, up from 22% YoY in August [2][3] - Logic semiconductors grew by 21% YoY, slightly down from 23% YoY in August, while memory semiconductors surged by 44% YoY, compared to 18% YoY in August [2] Demand Drivers - The growth in semiconductor revenues is primarily driven by sustained demand for data centers and AI spending, particularly in leading-edge logic semiconductors and High Bandwidth Memory (HBM) [2] - Memory revenue saw a significant rally due to tight DRAM supply and improved NAND supply driven by eSSD restocking demand [2] Unit Growth - Overall semiconductor units increased by 9% YoY, down from 13% YoY in August [3] - Memory units rose by 19% YoY, driven by growth in HBM shipments and strong demand for server DRAM [3] - Logic semiconductor units increased by 8% YoY, reflecting slower growth due to destocking and AI server production transitions [3] Average Selling Prices (ASPs) - Semiconductor ASPs rose by 17% YoY in September, up from 8% YoY in August [4] - Memory ASPs surged by 22% YoY, significantly higher than the 3% YoY increase in August, driven by tight supply-demand dynamics and increased demand from major suppliers [4] - Logic semiconductor ASPs increased by 12% YoY, supported by resilient pricing for advanced nodes [4] Future Outlook - The semiconductor industry is expected to maintain robust growth, particularly in AI technology supply chains, with no signs of a bubble [5] - The growth in AI technology is anticipated to continue, supported by increased capital expenditures from major cloud service providers (CSPs) [3][5] Company Recommendations - Preferred picks among Asian semiconductor companies include TSMC, SK Hynix, ASE, Advantest, and Tokyo Electron, while caution is advised on companies like Novatek, SMIC, and UMC due to their exposure to consumer electronics [8] Additional Insights - The recovery in the automotive and industrial sectors is expected to be slow due to macroeconomic uncertainties [8] - The pricing uptick may benefit memory, leading-edge foundry, and OSATs, but Tier-2 foundries may face margin pressures [8]

Summary of Key Points from the Conference Call Industry Overview - **Industry**: Asian Technology Sector - **Focus**: AI Infrastructure and Semiconductor Supply Chain Core Insights and Arguments 1. **Positive Outlook for Asian Tech**: Continued strong demand for AI infrastructure is expected to drive earnings per share (EPS) upgrades in the Asian tech sector, with estimates suggesting a potential 20-25% increase in consensus estimates for 4Q25 and 1H26 [2][6][8] 2. **AI Demand and Pricing Dynamics**: The demand for AI is tightening the supply-demand equation across various segments, leading to price hikes in DRAM, NAND Flash, and other components. This trend is anticipated to persist into 2026 [6][7][9] 3. **SPE Stocks Recovery**: After a period of underperformance, stocks in the semiconductor equipment (SPE) sector are expected to catch up due to strong front-end capital expenditure (capex) expectations, particularly from Foundry and DRAM sectors [2][6][8] 4. **No AI Bubble Burst Expected**: The current semiconductor capacity remains tight, and the anticipated capex increase in response to AI growth is just beginning, indicating that an AI bubble is unlikely to burst in 2026 [2][6][8] 5. **CSP Capex Growth**: The top four cloud service providers (CSPs) are expected to see a 20% growth in capex in 2026, driven by strong demand from AI labs like OpenAI and Oracle [6][8][9] 6. **Margin Pressure on OEMs**: Rising commodity prices are likely to pressure gross margins for PC and smartphone vendors, with specific concerns for companies like Asustek and Xiaomi [9][10] 7. **Industrial and Automotive Demand**: Recovery in industrial and automotive sectors is expected to be slow, influenced by macroeconomic conditions and new tariffs imposed by the US on China [9][10] 8. **Supply Chain Resilience**: Despite concerns over rare-earth export restrictions from China, large semiconductor vendors are believed to have sufficient inventory to mitigate production disruptions [9][10] Additional Important Insights 1. **Stock Picks**: Recommended stocks include TSMC, ASE Technology, Unimicron, and Tokyo Electron, with specific price targets and expected returns outlined [44][45] 2. **CSP Capex Composition**: The funding for capex among smaller CSPs is increasingly reliant on debt, which could impact future spending dynamics [8][9] 3. **Market Dynamics**: The competitive landscape in the AI server market is intensifying, which may lead to margin compression for OEMs as they compete for supply from major players like NVDA [9][10] This summary encapsulates the key points discussed in the conference call, highlighting the positive outlook for the Asian tech sector driven by AI demand, the expected recovery in semiconductor stocks, and the challenges posed by rising commodity prices and macroeconomic factors.

Investment Rating - The report assigns a "Buy" rating to TSMC and ASE Industrial, indicating a positive outlook for these companies in the semiconductor industry [5][32]. Core Insights - The demand outlook for CoWoS (Chip on Wafer on Substrate) is strengthened due to increased production estimates for Nvidia and Broadcom, with Nvidia's CoWoS demand expected to rise significantly in 2026 [2][4]. - Nvidia's Rubin production at TSMC is on track, with an increase in production units estimated from 1.3 million to 2.3 million in 2026, indicating robust growth potential [3]. - The introduction of Nvidia's new Rubin SKU, CPX, is anticipated to drive further CoWoS demand, with projections showing an increase from 444k units in 2025 to 678k units in 2026 [4]. Summary by Sections Demand Forecasts - Nvidia's CoWoS demand estimates for 2025 and 2026 have been raised by 5% and 26% respectively, driven by higher production units and new product launches [2]. - Broadcom's CoWoS demand for AI accelerators in 2026 has also been revised upwards, reflecting stronger demand from major clients like Google and OpenAI [2]. Production Insights - TSMC's CoWoS capacity is projected to increase from 100kwpm to 110kwpm by the end of 2026, supporting the anticipated growth in demand from Nvidia and Broadcom [2]. - The report highlights that Nvidia's total GPU production units at TSMC are expected to reach 6.9 million and 7.4 million in 2025 and 2026 respectively, up from previous estimates [2]. Stock Recommendations - TSMC is favored as a leading Cloud/Edge AI foundry due to its advanced packaging capabilities, while ASE is expected to benefit from the growth in advanced packaging and testing [5]. - The valuation comparison indicates strong growth potential for both TSMC and ASE, with TSMC's market cap at approximately $1,225 billion and ASE's at $25 billion [5].