ASE Technology LEAP demand drives 35% ATM revenue growth in 2026

ASE Technology Holding's leading-edge advanced packaging and testing (LEAP) services are outpacing the broader semiconductor market, with ATM revenues projected to grow 35 percent in 2026 as AI infrastructure demand reshapes the packaging supply chain.

"AI-related products are changing the normal demand pattern, helping reduce the impact of seasonality on the business," management at ASE Technology said. The company reported record ATM revenues of NTD 112.4 billion in the first quarter, up 30 percent year over year, and TWD 126.1 billion in the second quarter, up 36 percent. The ATM business accounted for 66 percent of consolidated revenues and 94 percent of operating profit in Q2.

ATM gross margin expanded to 27.3 percent in Q2 from 21.9 percent a year earlier, helped by higher factory utilization and a greater mix of LEAP services. Management expects ATM gross margin to exceed 30 percent in the fourth quarter. The company raised its 2026 capital expenditure plan by $2 billion to about $10.5 billion, with roughly 70 percent of the $6.5 billion equipment budget allocated to leading-edge operations.

ASE now expects LEAP revenues to exceed $3.5 billion in 2026, a couple hundred million dollars above its prior target, and aims to double LEAP revenues in 2027. The Zacks Consensus Estimate projects revenue growth of 27.9 percent in 2026 and 22.5 percent in 2027. ASX shares have surged 146.6 percent year to date, trading at 34.62 times forward earnings versus the industry average of 31.42 times.

Competition Intensifies in Advanced Packaging

Amkor Technology reported record second-quarter revenues of $1.9 billion, up 26 percent year over year, and announced a $1.5 billion multiyear partnership with Nvidia in July to expand advanced packaging and testing capabilities in the United States. Amkor also entered a 10-year partnership with Taiwan Semiconductor Manufacturing Company in June to expand advanced packaging capacity in Arizona, supporting the goal of a complete U.S.-based semiconductor supply chain covering chip manufacturing, packaging, and testing.

Intel Foundry is expanding its advanced packaging backlog, with a multi-year expansion of its back-end manufacturing facility in Malaysia. Revenue contribution from that capacity is expected to begin in 2027, with advanced packaging expected to remain a key growth driver for Intel's foundry business as AI demand grows.

Capacity Expansion and the AI Demand Curve

ASE is expanding its advanced packaging technologies, including full-process packaging, CoWoS-like packaging, and panel-level packaging, to support future AI applications. Demand is coming not only from AI accelerator chips but also from AI-related power management, connectivity, sensors, and edge devices. Both assembly and testing are seeing strong demand, while the expansion of full-process packaging is expected to provide another growth opportunity.

The company's ability to bring new capacity online as planned will determine whether strong LEAP demand continues to support revenue growth and margin expansion. Management said it has clear visibility into the capacity needed for 2027, and customer demand remains strong across both assembly and testing segments.

ASX trades at a premium to the semiconductor industry average, reflecting the market's expectation that AI-driven packaging demand will sustain growth. The Zacks Consensus Estimate for 2026 and 2027 EPS implies year-over-year growth of 47.4 percent and 73.2 percent, respectively. However, EPS estimates for 2026 have been revised down by 21 cents over the past 30 days, suggesting some near-term caution even as the long-term outlook remains strong. If AI infrastructure spending holds, ASE's capacity investments position it to capture a larger share of the advanced packaging market that TSMC, Amkor, and Intel are all targeting.

This article is for informational purposes only and does not constitute investment advice.