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2026-11-10 13:37:08 Morgan Stanley published a research report stating that the key concern for memory stocks is not delays in data center construction or artificial intelligence demand, but rather market skepticism surrounding the "2028 earnings cliff" narrative, namely doubts over the sustainability of memory growth momentum as supply begins catching up with demand. The bank named SAMSUNG ELEC (005930.KS) as its new top pick, replacing SAMSUNG ELEC MECH (009150.KS). The bank noted that valuation de-rating for the memory AI trade has persisted for months, with a sharp selloff last week driven by investor concerns that the outcome of the US midterm elections could delay data center construction. Near-term memory fundamentals, including demand and capital returns, remain intact, but the debate has shifted toward supply response in 2028, as new capacity is expected to begin production from late 2027 and could materially alter supply-demand dynamics. Morgan Stanley's US thematic research team expects some US projects totaling around 5 gigawatts to be delayed from 2028 to 2029, implying YoY declines of 4% in new US data center gigawatt additions in 2028 and YoY growth of 38% in 2029. Globally, additions are projected to rise 9% YoY and 20% YoY respectively. The bank lowered its long-term margin assumptions during the cycle to historical average levels, resulting in lower valuation multiples and TP cuts, offsetting the impact of share count reductions from buybacks. SK Hynix (000660.KS) TP was cut 38.5% from KRW2.6 million to KRW1.6 million, while the TP for SAMSUNG ELEC (005930.KS) common shares was lowered 19% from KRW381,000 to KRW309,000. The TP for SAMSUNG ELEC Pref (005935.KS) was also reduced 19% to KRW247,200. The bank maintained Overweight ratings on both stocks and said operating profit forecasts for 2026 to 2028 were still revised upward, although the duration for margins to remain at peak levels after topping out was shortened, with the cycle trough now expected to shift to 2029. The bank believes AI has made memory a structural growth story, though the sector remains cyclical with volatility around seven times higher than in the past. Returns are harder to capture in the later stage of the cycle, generally favoring the largest and best-capitalized technology leaders. As such, the bank named SAMSUNG ELEC (005930.KS) its new top pick. Morgan Stanley is positive on the recovery in SAMSUNG ELEC (005930.KS)'s high bandwidth memory (HBM) market share and its broader earnings base, which should provide greater resilience during the mature phase of the cycle. SK Hynix (000660.KS) is supported by its HBM positioning, strong earnings in 2027 and long-term agreements supporting 2028 performance, though the bank said it would turn more cautious if pricing weakens more than expected or if contract demand proves insufficient to shield against supply response.(ad/da)~ AASTOCKS Financial News Website: www.aastocks.com This article was automatically translated by AI, the Chinese version should be considered the authoritative version. AASTOCKS.com Limited does not guarantee its accuracy or completeness and accepts no liability for any damages or losses arising from the use of this translation. | |