Taiwanese chipmaker MediaTek rallies 19% in 48 hours on the back of Google AI collaboration

MediaTek just booked its strongest two-day gain ever. The Taipei-listed chipmaker jumped 8.6% on Monday, finishing off a 19% surge in 48 hours and closing at a new record high.

This rally didn’t come out of nowhere, traders are going wild over the company’s growing work with Google on tensor processing units, or TPUs, which power artificial intelligence systems.

That gain also pushed the broader Taiex index to a new high. MediaTek isn’t the only one running. Other Taiwan chip stocks like Nanya Technology and United Microelectronics also rose.

But unlike those two, MediaTek is in the spotlight for shifting from plain old smartphone chips to custom AI hardware, exactly what big investors are hunting for now that TSMC is too overloaded to touch.

Fund managers switch to MediaTek as TSMC hits exposure limits

Let’s be clear. Fund managers aren’t suddenly in love with MediaTek just because it’s trendy. They’re stuck. TSMC’s insane rally has boxed them in. Its shares have exploded since ChatGPT showed up in late 2022, and this month alone, TSMC hit new highs again.

But with so many portfolios already maxed out on TSMC, which now takes up almost 12% of indexes like MSCI Emerging Markets and Asia Pacific Ex-Japan, they’ve got no room left. Active managers with 10% single-stock caps are being forced to look elsewhere.

So where do they go? Right now, the answer is MediaTek. It’s not just about the Google partnership, though that’s huge.

Analysts at Morgan Stanley, including Charlie Chan, said in a Friday note, “We see large potential” in MediaTek’s AI application-specific integrated circuits. They also pointed out that while Google’s also tied up with Broadcom, MediaTek could still get more upside as it shifts resources from phones to AI chips.

Meanwhile, Morningstar analyst Phelix Lee called MediaTek’s forecast “conservative,” saying the company only included Google’s orders through October. The market’s betting it’ll beat that. And considering this recent 19% rally, traders clearly think that’s likely.

Now back to the TSMC traffic jam. Bulls and bears both can’t get much done because the stock is too crowded. Some investors are trying to game it through ETFs that are heavy on TSMC, or using structured products and swaps with built-in hedges.

But even that’s tricky. AI is still running hot, borrowing costs are low, and short sellers don’t want to get burned.

TSMC isn’t just sitting still, either. It’s still the main chip supplier for Google, Apple, and Nvidia, and with its earnings due Thursday, people are watching for another jump. Analysts think it’ll raise its yearly capital spending, which would pour more fuel on the fire.

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