$AMKR · Chip Stock Investor · 2026-10-27

Let's do a dedicated video on Amkor, ticker symbol AMKR.

This is a company that we have addressed in many videos over the last four-plus years of Chip Stock Investor's existence, but we've never done an actual dedicated video.

They had a pretty good Q3 2026. They did sales of nearly $2 billion at a gross margin of 18.3%. Right off the bat, that doesn't look like a particularly good business with a gross margin of 18%.

What exactly is Amkor? They are a manufacturer specifically for advanced packaging of semiconductors.

And Amkor in particular focuses on advanced packaging, stacking those chips into progressively more complex configurations, stacking them on top of each other, all for the sake of saving space and increasing performance.

So if we were to classify Amkor in the context of the semiconductor industry flow, they are there at the bottom, the manufacturing layer of the industry, and within semiconductor manufacturing, we'll put them on this chart in test and packaging of chips.

On the Q3 2026 earnings call, the CEO said packaging is becoming one of the key bottlenecks in the semiconductor industry. Especially NVIDIA, which is one of Amkor's key partners, needs more manufacturing capacity from Amkor to be able to package its GPUs and other systems up to be installed into data center servers and racks and installed at their customers within an AI data center.

In fact, just last week, NVIDIA and Amkor announced an expansion of their existing partnership.

Another $1.3 billion is going to be invested in South Korea. That's where some of Amkor's facilities are. And when you pair that up with the new facilities in Arizona where Amkor is also building, it brings the total commitment from NVIDIA to Amkor to $3 billion.

That's some much needed help Amkor will need in building out these facilities. And you saw on that press release, Arizona, where Amkor's facilities are, those are going in not too far from where TSMC, Taiwan Semi Manufacturing, is building its new fabs in North Phoenix.

Amkor is also a strategic, let's say, offload partner for TSMC.

TSMC also being asked of its customers to expand its advanced packaging capabilities, and it can't do all of it itself, so it has signed agreements with Amkor and shared some technology and technology roadmaps with Amkor to be able to handle some of those capabilities as well.

So, Amkor kind of riding the coattails of two of this bull market's most important companies, NVIDIA and TSMC. This is overall working out pretty well for Amkor, even though this quarter was not the highest growth.

Revenue was up just shy of 5% quarter over quarter from Q2 and basically flat from Q3 of 2025 at $1.99 billion. Net income did have a nice sequential increase, though, up 10% quarter over quarter and over 50% year over year as some of their past investments start to pay off.

Free cash flow, though, was negative because of the elevated CapEx. That is a very lumpy metric as we talk about all the time. Because capital expenditures get made in cash upfront.

When customers need that advanced packaging capacity to come online.

So you see the elevated CapEx the last two quarters for Amkor, 548 million this quarter. That's why NVIDIA is making some commitments to help Amkor be able to expand in South Korea and Arizona.

And as a result, the free cash flow is a little bit all over the board, negative the last three quarters after posting a big, healthy 212 million free cash flow at Q4 2025.

But if you wanna smooth those results out, you can use GAAP net income again, which was almost 191 million this quarter, up 10% sequentially and up 50% year over year.

I'll stop in this slide for just a moment just to give you a little bit more insight into what is driving Amkor's results. They report their revenue across computing, auto and industrial, consumer, and communications segments.

On the left, computing and a nice continued recovery in auto and industrial advanced packaging and testing needs were the driving force this quarter, both up 37% year over year.

And a little bit of seasonality and also the consumer segment not having such a great year.

Communications down a bit due to timing and memory supply. But overall, Amkor definitely riding the AI data center wave. Now let's come back to that gross margin of 18.3% I mentioned at the beginning of this video.

That doesn't look so great. A gross margin below twenty percent, but for a manufacturing business, this actually isn't so bad.

And in fact, the 400 basis point increase year over year, so basically Amkor fourteen percent gross margin a year ago in Q3 twenty twenty-five, now over eighteen percent in Q3 twenty twenty-six.

Most of the company's expenses actually land in cost of goods sold. Because it's a manufacturer, they log most of their expenses as gross expenses for building manufacturing facilities, managing those manufacturing facilities, buying equipment, paying employees to operate those facilities. That is why the gross margin is so low.

Focus more on the operating margin at eleven percent. So not a whole lot of operating expenses in this business, but a whole lot of variable cost of goods sold that happens there on the gross margin.

So the big increases in gross margin year over year, the 400 bips increase year over year, this is a result of Amkor filling up its facilities with all of that AI data center equipment demand.

Advanced packaging for servers and AI data center racks.

Another positive here, because it has been deemed to be a critical part of the manufacturing supply chain, Amkor's balance sheet is actually pretty good. 2.4 billion in cash and short-term investments, total debt of two and a half billion.

The company is in pretty good shape, and again, getting those capital infusions from NVIDIA to expand its manufacturing capabilities is a big reason why the balance sheet is so healthy.

A quick look at the Q4 2026 guidance revenue expected to be up just slightly sequentially to 1.9 to two billion, let's say flat to maybe slightly up sequentially.

Potentially another increase in gross profit margin is possible, though, up to eighteen to nineteen percent. That's the guided range. GAAP earnings per share expected to be down a bit sequentially, 65 cents to 75 cents is the range due to timing of investments that the company is making.

And the timing of those investments, well, actually expected to ramp up in 2027. So again, because of the NVIDIA partnership, they are now also going to be expanding in South Korea.

In addition to the ongoing work happening in Arizona, and then a little bit of facility spending in their Vietnam facilities.

Amkor stock is down quite a bit from its all-time high, like pretty much everything else in the semiconductor supply chain.

End of June, early July marked the high point, and since then, a lot of these stocks have sold off as the market realized these valuations had gotten way ahead of themselves, and there's no real reason that they should trade at a premium when the actual driving force behind all of this AI data center build-out is the hyperscalers, which is a result of AI, and AI demand.

Anthropic's S-1 IPO filing came available today. That's one example, but lots of new AI software and AI services coming online. So the hyperscalers providing the infrastructure for that, NVIDIA and some of the other leading chip designers and system designers like Broadcom, AMD, and so on, those are actually the driving force behind this.

Amkor is a critical part of that manufacturing supply chain, but did it really deserve to trade at a very high premium? Probably not, because it is reliant on its chipmaking and chip design partners.

I think this is a much more rational valuation for Amkor. It deserves to trade at a cheaper valuation currently.

Depending on when you watch this video, it's somewhere in the mid to high teens trailing 12-month PE ratio and a mid-teens forward-looking PE ratio. Because of the investments being made to expand manufacturing next year into 2027, you could see the actual realized net profit come down a little bit next year from the recent highs.

So for us here at Chip Stock Investor, Amkor is not a business that makes a lot of sense for us. It doesn't add any extra diversification to our portfolio.

Q3 was great. Pretty good solid report, a lot to like there, but one that we are passing on. And the reason for that. If we go back to our semiconductor supply chain, semiconductor industry flowchart that we debuted here coming up on four years ago, if you look just to the right of the manufacturing layer there in purple at the very bottom, just to the right of that in dark blue is wafer fab, packaging, and assembly equipment.

When it comes to advanced packaging, manufacturing capabilities, it's actually the equipment itself that we prefer to invest in here at CSI.

If we use our pizzeria analogy that we like to use, including the live video that we did here on YouTube yesterday, replay of that is available. We compared the entire semiconductor industry flow to running a pizza shop.

So manufacturing would be like the actual making of the pizza, baking it in the oven, slicing it, and throwing it in a box for delivery. But if you back up one step, owning a pizzeria is a pretty high-risk, usually low-profit endeavor.

But what about the companies that provide the kitchen equipment? All of the utensils that you need to make the pizza, everything from knives and cutters to cheese graters to the oven itself.

That's where we like to invest. It's also a pretty cyclical part of the industry, but a higher profit margin one.

But we think that premium valuation for Applied Materials makes much more sense than a premium valuation on the actual manufacturing facilities like Amkor.