Expecting AI sales contribution to arrive earlier

Nomura maintains a Buy rating on United Microelectronics Corporation (2303.TW) and raises the target price to TWD176 from TWD140, based on 20x average 2027-28F EPS of TWD8.8, implying 33.8% upside from the closing price of TWD131.50 on 19 October 2026. We expect AI sales contribution to reach USD1bn+ by 2028F, one year earlier than guidance. UMC's current AI-related revenue is at an annual scale of USD300mn, and with silicon photonics, silicon capacitors and thin-film lithium niobate ramping from 2028F, AI sales could exceed USD1bn. Higher capex in 2027-28F may lead to low-teens y-y depreciation growth, but favorable mature-node pricing and accretive SiPh/Si-cap contributions should lift GM to 40.1%/41.5% in 2027-28F. We fine-tune 2026F EPS to TWD7.38 and raise 2027F/28F EPS by 3%/9% to TWD7.93/9.58. The near-term 4Q26F outlook is stable, with mature-node pricing up 10%+ from 1Q27. Downside risks include slower end-market demand, weaker 28nm demand, aggressive capacity expansion and sl