Morgan Stanley, which recently warned of a slowdown in the semiconductor cycle, this time presented the pullback in memory chip stocks as a buying opportunity. With data center-focused artificial intelligence (AI) investment continuing to expand, memory shortages could persist through 2028, it projected.
On the 20th (local time), Joseph Moore, a Morgan Stanley analyst, said in a note to investors, "This memory cycle remains unusual in that the only driver is data center (demand)," adding, "This means, as we saw in April, there are mixed signals that may be a 'false flag' in other areas."
Moore said the recent correction in memory chip stocks also reflects these mixed signals in the consumer IT market.
"Because the cycle is entirely driven by data centers, we are seeing mixed signals in the consumer electronics, PC, and smartphone markets, and these affect the spot market and inventory levels at different times. The news that dragged stocks down over the past few days appears related to these factors," he said.
However, he did not view the recent share-price drop negatively. He said, "Memory is not the best area for risk versus revenue among our coverage. We think that is Nvidia and Broadcom, but memory is quickly closing the gap with them."
He added, "Buying interest is concentrated in memory stocks, and given the unusual nature of this cycle, a downturn is inevitable," but said, "We see this weakness as a buying opportunity."
He also said the memory shortage is actually deepening. Citing meetings last week with data center procurement managers, Moore said the intensity of the memory shortage shows "no signs of easing at all." He said memory prices in the third quarter are expected to rise at least 25% from the prior quarter on a like-for-like basis, exceeding forecasts not only at Morgan Stanley but also at other securities firms.
He also expected the shortage to continue over the long term. "More importantly, long-term concerns that memory shortages will intensify in 2027 and 2028 remain stronger than ever," he said. "Memory is not sufficient relative to AI demand, and we do not see that trend reversing."
He added, "While we see Nvidia and Broadcom as the most valuable corporations, memory is also quickly closing the gap amid the recent share-price decline, and that will offer good entry points for memory stocks."
Earlier, in a report on the 6th, Morgan Stanley said, "We are exiting a narrow rally centered on semiconductors and entering a phase where market leaders are gradually broadening," and said it prefers hyperscaler corporations such as Meta over memory chip stocks including Samsung Electronics and SK hynix. At the time, it cited factors such as Meta's external sales of surplus AI computing to raise the possibility that the pace of AI investment growth could slow, and it recommended underweighting semiconductors.