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J.P. Morgan started coverage on Amkor Technology (NASDAQ:AMKR) with an Overweight rating and a price target of $48.
Analysts led by Peter Peng noted that the Tempe, Ariz.-based company is a key outsourced semiconductor assembly and test, or OSAT, supplier and a vital foundational semiconductor industry ‘enabler’ (OSAT, Foundries, Semicap Equipment, and electronic design automation ,or EDA, are all industry enablers).
Artificial intelligence, or AI, high-performance computing, 5G, electric vehicles, among other applications are driving strong demand for advanced packaging solutions due to their higher compute performance and power efficiency requirements, the analysts added.
The analysts believe Amkor is a key beneficiary of this trend, with 75% to 80% of its revenues tied to advanced packaging and is rising as a strong second supplier for Chip-on-Wafer-on-Substrate, or CoWoS (2.5D) packaging to Nvidia, along with other customers.
Peng and his team estimate the OSAT market is about $40B Serviceable Addressable Market, or SAM, and growing at about 5% to 7% CAGR and see Amkor outpacing industry growth by around 1.2-1.5x, steered by its differentiated advanced technology/IP portfolio, continued outsourcing demand trends, customer share gains, and geographical positioning (due to geopolitical/supply dislocation risk mitigation).
In addition, the analysts said that over the next nine to 12 months, as the company drives upside to J.P. Morgan/consensus estimates on improving cyclical trends/demand, ramp up of its 2.5D packaging solutions, and announces new/strategic customers, they could see the stock approaching their fair value target.
J.P. Morgan noted that industry cyclical recovery is underway, combined with powerful long term growth trends. The analysts see a positive fundamental setup for Amkor, steered by the broader semiconductor recovery on top of continued outsourcing demand trends (such as Arm adoption in PC/Server market), customer share gains (e.g., Apple), advanced packaging growth, and its geographical positioning/footprint.
The company has a technology leadership in advanced packaging solutions with increasing AI exposure. Amkor is the only OSAT capable of doing a full-turkey solution for 2.5D packaging and is growing as a strong second supplier for CoWoS (2.5D) packaging to Nvidia and others, according to the analysts. Peng and his team estimate 2.5D solutions (AI revenues) could contribute 3% to 4% of the company’s total revenue this year, increasing over time.
Amkor is well-positioned to capture higher content/market share as Arm-based architectures proliferate across the PC and server end market, the analysts added.
Amkor (AMKR) has a Hold rating at Seeking Alpha’s Quant Rating system, which consistently beats the market. The Seeking Alpha authors’ (1 author in total) average rating is also Hold, but the average Wall Street analysts’ rating is more positive with a Buy.