ASE Technology Holding ASX is exploring co-packaged optics (CPO) as demand for artificial intelligence (AI) infrastructure increases the need for faster data transfer and better system performance. CPO combines optical and electrical technologies to improve communication between chips and other system components. As AI data centers require greater bandwidth and more complex hardware, CPO could become an important area of development for the semiconductor packaging industry.
During its second-quarter 2026 earnings call, management said the technology could begin launching toward the end of 2026, initially at small volumes. These early deployments should provide useful information about bandwidth, system performance and heat management. This will help the company assess how the technology can be used in future semiconductor systems.
ASX is also exploring how its assembly, testing and electronics manufacturing services capabilities could support CPO. The company sees opportunities to combine its different capabilities to develop system-level solutions for customers. As of now, management said it needs more time to assess the technology and its potential revenue contribution. It expects to provide more details on its CPO services and outlook after another two quarters.
CPO could provide ASX with an additional growth opportunity as AI infrastructure continues to develop. The company is already benefiting from strong demand for advanced packaging and testing services. In the second quarter of 2026, its Assembly, Testing and Materials (ATM) revenues increased 36% year over year to TWD 126.1 billion, while ATM gross margin reached 27.3%, up from 21.9% a year earlier. If CPO adoption progresses and ASX can convert its development work into commercial business, the technology could support its long-term growth.
Here’s How Competitors Fare Against ASE Technology
ASX faces stiff competition from Amkor Technology AMKR and Intel INTC in advanced semiconductor packaging.
During its second-quarter 2026 earnings call, AMKR highlighted growing customer engagements across advanced packaging and testing technologies, including CPO. These programs span AI infrastructure, high-performance computing and networking. AMKR is also expanding its high-density fan-out packaging capabilities, with a new data center CPU program that began ramping in the second quarter and is expected to scale in the second half of 2026.
Intel is investing heavily in advanced packaging as AI demand increases the need for more computing capacity. Intel said that customer interest in its EMIB-T packaging technology remains high, with a growing backlog and plans to ramp the technology into high-volume production in 2027. The company also raised its 2026 capital expenditure outlook to more than $20 billion and expects 2027 spending to be significantly higher, with the majority of the investment going toward its U.S. network.
ASX's Price Performance, Valuation & Estimates
Shares of ASE Technology have surged 153.4% year to date compared with the Zacks Electronics - Semiconductors industry’s appreciation of 12.6%.
ASE Technology’s YTD Price Return Performance
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From a valuation standpoint, ASX trades at a forward price-to-earnings ratio of 21.21X, higher than the industry’s average of 11.35X. ASE Technology has a Value Score of D.
ASX’s 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 122.8% and 64.6%, respectively. EPS estimates for 2026 and 2027 have been revised up by 4 cents and 10 cents, respectively, over the past 30 days.
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ASE Technology 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).