Amkor Technology, Inc. (NASDAQ:AMKR) has what I would consider a very fascinating long-term story, but in the near-term, it’s a bit uncomfortable. That is primarily because of its current share price, not the business itself. The business has a lot going for it, and I’ll drill down into those later. The price, though, is not as cheap as it looks, in my opinion, and that is because the market is already valuing the upside from the company’s Arizona campus. That facility is not going to reach meaningful production levels until 2028, according to what Amkor tells us.
I believe that paying 14x EV/EBITDA for a business that is going to have sharply negative free cash flow, smaller gross margins, and very high capex figures over the next two fiscal years doesn’t sound like the best possible deal. To be clear, I’m confident in Amkor’s growth and expansion over a longer period of 5-10 years, but the next two years are also important when deciding what the stock is worth now.
Amkor’s Business
I think it’s fair to say that most people who own a smartphone, a laptop, or a car have interacted with Amkor’s work on some level, even if they don’t know it. The company runs one of the biggest outsourced semiconductor assembly and test provider (OSAT) businesses in the world, along with ASE Technology Holding Co Ltd (NYSE:ASX). OSAT companies are a critical part of the semiconductor supply chain, and they handle the packaging, testing, and prep work for semiconductor chips before they go into the devices I mentioned above.
There are a fair few tailwinds for the company’s business today because of how complex chip design and packaging have now become. For example, Nvidia Corp (NASDAQ:NVDA)’s AI accelerators depend on high-bandwidth memory connected through exactly this kind of advanced packaging architecture. We can also say the same for Apple Inc. (NASDAQ:AAPL)‘s entire lineup of custom silicon.
Also, Amkor’s product mix is interesting to me because of how much of its revenue comes from just one segment, and that segment has what I’d consider to be some of the strongest possible industrial support in the company’s sector. Advanced Products (the segment that contains its flip-chip chip-scale packages, flip chip ball grid array, and memory and wafer-level packages) brought in around 83% of its revenue in FY25, and it only has a few big customers that are driving sales here. According to the same FY25 annual report, Apple is Amkor’s biggest customer (~30% of total revenue), and it’s not even close. Then there’s Qualcomm Inc (NASDAQ:QCOM), which made up another 11% of the total for the year. Together, those two companies are supporting 40% of Amkor’s sales, and they are two of the biggest chip designers and producers globally. Besides them, there are some other AI-adjacent hyperscalers, so that’s an incredibly solid customer base that’s not going anywhere anytime soon.
I also believe that Amkor’s geographical location is another strategic advantage, especially when you look at the current geopolitical landscape. Generally speaking, most of the advanced packaging industry is in Asia, especially in Taiwan and China. ASE Technology, which is arguably the biggest of them, is in Taiwan, and JCET Group is a Chinese company. Amkor is the only one of them that has its headquarters in the US, and that’s partly why it is able to take advantage of CHIPS Act funding support for its $7 billion Arizona facility and have Apple and Nvidia as anchor customers there.
The Bull Case: Arizona And The AI Packaging Cycle
In my intro, I mentioned that I can see the long-term appeal to owning Amkor stock, and the Arizona campus is the main reason why. The company is spending $7 billion to build what will be the most advanced semiconductor packaging facility in the US, and it is supposed to start production there in early 2028. Roughly 5-8% of that amount could come from the US government’s CHIPS Act purse if Amkor takes the initial $400 million in direct funding and another $200 million in loans from the program, so it will fund the rest of the build by other means.
All of that is normal, but the main reason why I’m ascribing so much value to the campus is how important it is in terms of a geopolitical advantage. The US has made the semiconductor industry and its domestic advanced packaging capacity a national priority, and that’s not going to change anytime soon, regardless of which administration is in power. Amkor is the only company that can benefit from the policy change on such a huge scale, and that just gives it another moat.
Now, the demand backdrop for what Arizona will produce is as strong as anything I can point …
This post was originally published here
