ASE Technology Holding ASX shares have rallied 15.9% in the past three months, outperforming the Zacks Electronics - Semiconductors industry's decline of 9.1%. The stock has also outperformed its industry peers, including United Microelectronics Corporation UMC, GlobalFoundries GFS and Synaptics SYNA. In the past three months, shares of United Microelectronics Corporation have returned 15.5%, while GlobalFoundries and Synaptics shares have plunged 39.7% and 26.5%, respectively.
The outperformance of ASE Technology's shares raises the question: Does it still have room to run, or is it time for investors to consider taking profits? Let's find out.
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ASE Technology is seeing strong demand for its leading-edge advanced packaging (LEAP) services as the growth of AI increases demand for more complex semiconductor packaging and testing. LEAP revenues are tracking ahead of the company's earlier 2026 target of $3.5 billion. Management now expects to add another few hundred million dollars to this year's LEAP revenues and is targeting a doubling of LEAP revenues in 2027.
The company has clear visibility into customer demand and the capacity needed to support this growth. ASE plans to add facilities and equipment to expand LEAP capacity, with another $2 billion of CapEx added to its 2026 plans. Management said the company expects to continue making heavy investments in both advanced packaging and testing to support customer demand.
The growth is already showing up in ASE's results. In the second quarter of 2026, ATM revenues rose 36% year over year to TWD 126.1 billion. Higher LEAP volumes also helped lift ATM gross margin to 27.3% from 21.9% a year earlier. Management expects LEAP and test businesses to remain margin accretive and sees ATM gross margin moving above 30% in the fourth quarter of 2026.
Still, execution remains a key factor. ASE said its near-term growth is limited by how quickly it can install equipment and complete new facilities. ASE is working on 13 greenfield and eight brownfield projects. These projects are expected to provide capacity through 2028 and into part of 2029. However, managing so many projects at the same time might create execution risks, particularly around construction, equipment installation and meeting required timelines.
Nonetheless, strong AI-related demand, expanding capacity and higher-margin LEAP services give ASE a solid base for growth. Its target to double LEAP revenues in 2027 looks achievable, but timely capacity expansion and execution will be important for the company to meet that goal. The Zacks Consensus Estimate for 2026 and 2027 indicates revenue growth of around 27.9% and 22.5%, respectively.
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ASX shares are trading above their 50-day & 200-day moving averages, a bullish technical signal that indicates the potential for continued upward momentum in the near term.
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ASE Technology is seeing continued demand for its Electronics Manufacturing Services (EMS) business, but rising component costs and product mix are putting pressure on EMS profitability. This could remain a concern even as revenues grow.
In the second quarter of 2026, EMS revenues increased 6% sequentially to TWD 65.8 billion. However, EMS gross margin fell 0.6 percentage points sequentially to 8.9%, while EMS operating margin declined to 2.4% from 3.0% in the prior quarter. Management attributed the margin pressure to unfavorable product mix and a higher component cost environment. Further, EMS is also expected to lag the core ATM business in 2026. Management expects EMS revenue growth in 2026 to remain below 20% compared with more than 35% growth for ATM. This could limit EMS' contribution to ASE's overall growth.
The segment remains exposed to rising component prices. While management expects to pass higher costs through to customers, price increases can still pressure margins in the near term. For the third quarter of 2026, management expects the EMS operating margin to be around 3.2-3.4%, while noting that without component price increases, the margin would be closer to the typical seasonal level of 3.7-3.8%. This suggests that cost inflation remains a key factor behind the weaker profitability in the EMS business.
The above-mentioned factors show that continued component-cost inflation and unfavorable product mix could keep EMS margins low, limiting the benefit that ASE gets from revenue growth. This remains a key concern because the company is investing heavily across the business, while EMS remains a relatively lower-margin operation. Management acknowledged that higher memory/component costs can be passed through to customers, but the second quarter results show that this did not fully prevent near-term margin pressure. Overall, weak margins, higher component costs and slower growth than ATM remain key concerns for ASX's EMS business.
ASE Technology is currently trading at a higher price-to-earnings (P/E) multiple, significantly higher than the Zacks Electronics - Semiconductors industry. ASX's forward 12-month P/E ratio sits at 22.00X, significantly lower than the Zacks industry's trailing 12-month P/S ratio of 13.62X.
ASX stock also trades at a higher P/E multiple compared with other industry peers, including GlobalFoundries, United Microelectronics Corporation and Synaptics. At present, GlobalFoundries, United Microelectronics Corporation and Synaptics have P/E multiples of 18.78X, 18.21X and 17.66X, respectively.
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ASE Technology continues to benefit from strong demand for LEAP services as AI drives demand for advanced packaging and testing. Management expects LEAP revenues to grow further in 2026 and is targeting a doubling of LEAP revenues in 2027. Higher LEAP volumes are also helping improve ATM margins, while the company is adding capacity to support customer demand.
However, ASX's EMS business is seeing weaker margins due to higher component costs and an unfavorable product mix. Management expects EMS growth to remain below that of the ATM business in 2026, which could limit its contribution to overall growth. Further, the company's premium valuation warrants a cautious approach to the stock.
Currently, ASE Technology carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).