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Morgan Stanley Upgrades Asia Chip Stocks on AI Clamor

Morgan Stanley is even more optimistic about chip stocks in Greater China, Japan, and South Korea due to the long-term prospects for semiconductors linked to artificial intelligence.

The US broker raised the price targets for Korea’s Samsung Electronics Co. and SK Hynix Inc. and upgraded the sector in China to attractive from in-line. The chip industry in Japan was also upgraded from attractive to in-line, with Disco Corp. moving up to overweight.

“We expect tech deflation — price elasticity — coupled with secular AI semi demand will together trigger the next logic semi upcycle,” Morgan Stanley analysts, including Charlie Chan, wrote in a July 6 note. “Historically, the reversion of semi inventory days is a strong signal” for stock price appreciation, they added.

According to a note from Nomura Holdings Inc., global sales data reported by the Semiconductor Industry Association for May showed signs of bottoming out, with revenue increasing 1.7% from April.

After upgrading some names in South Korea and Taiwan in October, Morgan Stanley is expanding its bullish view of the region’s chipmakers. Since then, chip gauges have increased by more than 27% in both countries.

The company reported a spike in orders for AI semiconductors over the previous two weeks, revising earnings for players such as Taiwan Semiconductor Manufacturing Co. and advising investors to get involved in a smartphone recovery. Will Semiconductor Co. was upgraded to overweight.

Shawn Kim and other analysts claimed in a separate note that the DRAM market is expected to grow by nearly 10 times over the next four years, benefiting Korea’s memory chipmakers. SK Hynix was their top pick.

The company’s positive view came before Samsung announced its worst quarterly revenue since at least 2009.

“We are likely to see EPS power expectations meaningfully raised over the coming years behind the emergence of high bandwidth memory and accelerating demand for AI servers,” Kim wrote.

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BRL Editor
BRL Editor
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