Amkor plans to invest up to $3 billion, representing nearly 40% of its revenue.

      Amkor Technology announced impressive results for its second quarter on Monday. Revenue reached $1.9 billion, marking a 26% increase from the previous year, while net income more than tripled. Operating income approximately doubled to $200 million, with earnings of $0.70 per diluted share, up from $0.22. EBITDA was reported at $400 million.

      However, the significance lies more in the company's future plans than just the numbers. Amkor has projected capital expenditures of $2.5 billion to $3 billion for 2026. Compared to the first half revenue of $3.58 billion, this budget accounts for approximately 35% to 42% of annualized sales.

      Historically, packaging was considered the lower-cost segment of the industry, but this perception is changing. As an OSAT, Amkor packages and tests chips that others design and manufacture, traditionally operating in the low-margin sector. The gross margin has shown improvement, rising to 16.8% from 12.0% the previous year, an increase of 480 basis points. The guidance for the third quarter estimates gross margins between 18.5% and 19.5%.

      Nevertheless, Amkor's own risk factors outlined in the same release caution investors about the "historical downward pressure on the prices of our packaging and test services." This statement now reflects a past scenario.

      Advanced products drove the quarter's success, bringing in $1,557 million, representing 82% of total sales.

      The company has already committed to significant spending, having invested $688 million in property and equipment during the first half. To meet its full-year target, it will need an additional $1.8 billion to $2.3 billion, approximately three times the spending rate of the first half. A portion of this expenditure is secured; the capital expenditure payable, representing amounts owed for already ordered equipment, rose from $243 million in December to $621 million in June.

      Amkor's balance sheet reflects these changes, with long-term debt increasing from $1.28 billion to $2.33 billion after raising $1.15 billion in the first half. Cash and short-term investments are currently at $2.5 billion, equal to total debt.

      Part of the funding is coming from customers. Nvidia has pledged $1.5 billion to expand Amkor's packaging capacity in the U.S., structured as a prepayment. Additionally, TSMC signed a ten-year agreement in June for advanced packaging in Arizona, while Amkor's Peoria facility received $407 million under the CHIPS Act.

      The rationale behind this investment strategy is geographical; advanced packaging has predominantly been concentrated in a few Asian locations for years, creating a single point of failure in the AI supply chain.

      It is vital to analyze one particular figure carefully. The second quarter of the previous year included a $32 million benefit from a contingency payment related to the Nanium acquisition. Excluding that, the prior year's operating income base adjusts to about $60 million, making the underlying growth appear more robust at approximately 233%.

      The real concern lies elsewhere, as Amkor has informed investors about an "absence of backlog" and that customer commitments are primarily short term. The company is investing $3 billion against orders that do not have guaranteed continuation.

      Such patterns have historically led to market backlash. For instance, TSMC recorded substantial revenue yet saw its stock drop due to capex concerns, while chip stocks fluctuate with variations in AI demand.

      On a positive note, Amkor's top ten customers contributed 66% of sales, a reduction from 72% a year ago, indicating that growth is diversifying rather than concentrating.

      In terms of revenue sources, communications, largely from smartphones and tablets, still accounts for 42% of revenue. Computation represents 22%, while automotive and industrial sectors make up another 22%, and consumer has decreased to 14% from 18%. Kevin Engel, the president and CEO, noted that the company set revenue records in both computing and automotive/industrial sectors, highlighting customer initiatives in AI and high-performance computing.

      Looking ahead, the guidance for the third quarter anticipates revenue between $1.95 billion and $2.05 billion, with net income expected to fall between $180 million and $205 million, or $0.72 to $0.82 per share.

      The overarching question is whether packaging capacity remains limited. TSMC is constructing its own facility in Chiayi and has increased prices across advanced manufacturing. Margins similar to those of Amkor typically attract competition. The next few quarters will reveal whether this bottleneck remains or if the industry expands its capacity, allowing prices to decline again.