Amidst the continued pressure on the semiconductor market, Morgan Stanley believes that the future of AI chips is bright and promising, while memory chips will need more time to wait for market recovery.

On the 18th, Morgan Stanley analyst Charlie Chan released the latest research report, explicitly expressing a bullish attitude towards AI chip-related companies, especially advanced process wafer foundries such as Taiwan Semiconductor, and a more cautious attitude towards memory chip-related companies, such as South Korean semiconductor giant Hynix.

Morgan Stanley points out that AI is a key factor driving the growth of logic chips, which have clearly decoupled from the memory cycle. With the continuous development of AI technology, AI semiconductor companies are expected to perform well in future economic cycles.

At the same time, traditional memory, PC, and cloud computing-related companies may face greater pressure.

AI as the driving force behind the growth of logic chips

Morgan Stanley first points out that historically, the market cycles of logic chips and memory chips have often been synchronized, but the two are gradually showing a separation in their cycles. The demand for logic chips (such as AI chips) is driven by the rapid development of AI technology, while the memory market (such as DRAM) is in a relatively weak state due to supply-demand imbalance.

Morgan Stanley emphasizes that AI technology is the main driving force behind the continued growth of the logic chip market.

This structural growth undoubtedly comes from AI - the revenue growth of AI semiconductor supply chain companies remains strong, while non-AI companies only experience a mild recovery.

Benefiting from the explosive growth of AI technology, advanced foundries like Taiwan Semiconductor (TSMC) have performed exceptionally well in the inventory cycle and are experiencing strong market demand. Morgan Stanley continues to give TSMC an 'overweight' rating, believing that its strong AI chip orders and advanced process advantages will drive its continued growth in the next few years.

As TSMC doubles its CoWoS production capacity for GPU and ASIC AI chips, the revenue growth of the AI semiconductor supply chain will remain strong in 2025 and 2026. It is expected that the annual revenue growth rate will be 15%-20% over the next five years.

Specifically, the inventory days of logic chips continue to decrease in the second quarter of 2024, indicating a gradual recovery in market demand. In particular, AI-related chips, benefiting from the deep penetration of AI technology in various industries, have become a key driving force for the growth of the entire industry.

We still expect logic semiconductor companies with a long-term trend in AI (such as TSMC) to overcome cyclical trends, as EPS estimates continue to rise.

Morgan Stanley states that TSMC's layout in the field of AI chips can not only help maintain its revenue growth, but also provide price protection for the stock in the potential downturn cycles for memory and logic semiconductors in the coming quarters. The target price for TSMC is expected to be 1220 NTD per share, while the current stock price is 973 NTD, representing a growth of about 25%.

Challenges in the memory industry.

In contrast, the memory market faces more challenges.

Morgan Stanley points out that the memory industry is being affected by oversupply and price declines, especially in the DRAM market, where more competitors have entered, and the industry is fiercely competitive and entering a downward cycle.

Morgan Stanley specifically mentioned that memory companies like SK Hynix will face greater pressure and the prospects are not optimistic. Morgan Stanley has a 'underweight' rating on the memory giant SK Hynix and believes that its performance growth will be squeezed by competition from China and Samsung.

Finally, the research report looks at the future trends in the semiconductor market for the next few years. Morgan Stanley believes that the growth momentum of AI chips will help logic chip companies break through cyclical constraints, while the memory industry will need more time to adjust.

Looking ahead, we believe that leading chip foundry supplier Taiwan Semiconductor can maintain strong revenue growth of an average of 26% over the next four quarters. Other companies may experience a slowdown in growth; we expect average year-on-year growth during the same period to be only 2%.

In a research report released the day before, Morgan Stanley 'halved' the target price of SK Hynix, directly lowering it from 0.26 million Korean won to 0.12 million Korean won.

Editor/Lambor