Will Strong ATM Momentum Continue to Fuel ASX's Margin Growth?

ASE Technology Holding ASX is seeing strong growth in its ATM business, supported by demand for advanced packaging and testing services. In the second quarter of 2026, ATM revenues reached a record TWD 126.1 billion, up 36% year over year and 12% sequentially. Higher loading across both LEAP and general services helped ATM revenues come in above management’s expectations. For 2026, ASX expects ATM revenues to grow 35% year over year.

Strong ATM growth is improving ASX’s profitability. ATM gross profit increased to TWD 34.5 billion in the second quarter, while gross margin rose 5.4 percentage points year over year to 27.3%. The improvement was mainly driven by higher operating leverage and a better revenue mix, including a higher contribution from LEAP services. ATM operating profit increased 124% year over year, while operating margin rose 6.2 percentage points to 15.7%.

The ATM business is also becoming a larger contributor to ASX’s overall profits. In the second quarter, ATM accounted for 66% of consolidated revenues, up from the year-ago quarter's 61% of revenues. Similarly, ATM accounted for 94% of operating profit, up from the year-ago quarter's 87% of operating profit. Management attributed much of this change to the growth of LEAP services over the past few years. Higher utilization and continued investment in automation are key factors that are helping improve operating efficiency.

ASX expects ATM profitability to improve further in the second half of 2026. For the third quarter, the company expects ATM revenues to increase 11-13% sequentially, with gross margin between 28% and 29%. Management also expects fourth-quarter 2026 ATM gross margin to exceed its current structural ceiling of 30%, supported by the growing contribution from LEAP and testing services. The Zacks Consensus Estimate for 2026 and 2027 indicates revenue growth of around 27.9% and 22.5%, respectively.

How Competitors Fare Against ASE Technology

Amkor Technology AMKR is a leading outsourced semiconductor assembly and test service provider, benefiting from strong demand for AI/HPC packaging. In the second quarter of 2026, Amkor reported record revenues of $1.9 billion, up 26% year over year. In the second quarter of 2026, AMKR’s gross profit surged 75.2% year over year, while gross margin expanded 480 bps on a year-over-year basis.

Intel INTC is another competitor with a growing focus on advanced packaging. The company views advanced packaging as an important part of its foundry strategy as AI systems move toward more complex systems-in-package designs. In the second quarter of 2026, management said interest in its EMIB-T technology remains high, with a growing backlog and plans to ramp the technology into high-volume production in 2027. In the first quarter of 2026, non-GAAP gross profit was $6.74 billion compared with $3.81 billion in the year-ago quarter, with respective margins of 41.8% and 29.7%.

ASX's Price Performance, Valuation & Estimates

Shares of ASX have surged 126.8% year to date compared with the Zacks Electronics - Semiconductors industry’s return of 27.5%.

ASX YTD Price Return Performance

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From a valuation standpoint, ASX trades at a forward price-to-earnings ratio of 21.82X, higher than the industry’s average of 13.77X. ASX has a Value Score of D.

ASX Forward 12-Month P/E Ratio

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The Zacks Consensus Estimate for ASX’s 2026 and 2027 earnings per share (EPS) implies year-over-year growth of 112.3% and 59.5%, respectively. EPS estimates for 2026 and 2027 have been revised up by 9 cents and 4 cents, respectively, over the past 30 days.

Image Source: Zacks Investment Research

ASX currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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