According to the Jin10 Finance app, Morgan Stanley's September 15 research report titled 'The Coming Winter' presents a gloomy forecast for the global chip industry, predicting that the AI bubble is about to burst, and expressing concerns about the prospects of South Korean memory chip manufacturers SK Hynix and Samsung Electronics. The report points out that due to sluggish demand for general DRAM and an expected oversupply of AI-specific high-bandwidth memory (HBM), the stock prices of these two companies plummeted.

Morgan Stanley downgraded its rating of SK Hynix from 'shareholding' to 'shareholdings', and significantly reduced the target price from 0.26 million Korean won to 0.12 million Korean won, citing its weakening pricing power. Meanwhile, the target price for Samsung Electronics was also lowered by 27.6% to 0.076 million Korean won. The report mentioned that as the industry enters the late cycle, revenue growth and profit margins will face greater challenges.

However, this pessimistic forecast has not been endorsed by all analysts. Samsung Securities analyst Minseok Hwang pointed out that SK Hynix's HBM capacity is expected to increase from 1.3 million units per month by the end of this year to 1.5 million units by the end of 2025, and the company will only produce products for pre-contracted volumes. He also questioned why, if there is truly an overabundance of HBM supply, would Nvidia (NVDA.US) seek additional supply from Samsung Electronics.

Figure 1

It is understood that HBM is a high-performance semiconductor chip that supports generative AI devices, high-performance datacenters, and machine learning platforms by stacking multiple DRAM chips together. Most chip analysts believe that the HBM market is driven by customization and customer approval, thus minimizing the risk of oversupply.

Taiwan market tracking agency TrendForce also said that due to the expected increase in the average selling price of DRAM by 2025 and the expected improvement in the penetration rate of HBM, the outlook for the industry is "not so pessimistic". Nomura Securities also believes that considering the possible production interruptions of some chip manufacturers, actual oversupply is "unlikely to occur".

Figure 2

Shinyoung Securities Co. predicts that the global demand and supply of HBM will reach 220 billion GB and 190 billion GB respectively next year, indicating that the phenomenon of supply shortage will continue to exist. In this regard, Shinyoung analyst Park Sang-wook pointed out: "Although the demand for general DRAM shows signs of weakness, the strong demand for HBM will effectively offset this trend."

Weak demand for DRAM in mobile devices and PCs.

In a recent market analysis report, Morgan Stanley pointed out that the demand for DRAM in mobile devices and personal computers is slowing down, a view shared by many analysts. Globally, the PC and smartphone markets continue to underperform, for example, pre-orders for Apple's latest iPhone 16 series have decreased by 13% compared to the previous generation.

As a result, some Korean securities companies have lowered their expectations for third-quarter earnings of domestic chip manufacturers. Nevertheless, industry giants Samsung and SK Hynix have both stated that they have observed stable demand for memory chips from smartphones and personal computers.

Meanwhile, China's Changxin Storage Technology is actively expanding its production capacity of DDR4 memory chips, a strategy that puts greater pressure on Korean chip manufacturers in price negotiations with Chinese companies, attracting widespread attention from the market.

However, Nomura Securities believes that South Korean chip manufacturers will be able to adapt flexibly to market changes. They expect these companies to reduce production of older DDR4 chips and increase the output of more advanced DDR5 chips. If market conditions require, South Korean chip manufacturers are also prepared to adjust overall production levels to maintain competitiveness and profitability.

Stock Price Outlook

Regarding the stock price outlook for SK Hynix, analysts have different views. Future Asset Securities maintains a target price of 0.26 million won for SK Hynix and expects the chip manufacturer's operating profit to increase by 71% in 2025. Analyst Kim Young-gun from Mirae Asset also stated that SK Hynix is expected to perform well, even in the chip industry's downturn, due to the increasing profitability of HBM.

Some analysts suggest that investors wait until the end of this year, as the market generally expects a decline in earnings in the third quarter. Hwang from Samsung Securities predicts that there may be a market rebound around November after the U.S. presidential election, which could stimulate the economy through interest rate cuts.

Overall, despite Morgan Stanley's report causing concerns in the market about the chip industry, many analysts believe that the customization and customer recognition characteristics of the HBM market, as well as the flexible strategies of South Korean chip manufacturers, will help alleviate the risk of oversupply and maintain stable development in the industry.