Source: Wall Street See

Morgan Stanley says the memory industry is entering a downturn cycle, but Nomura Securities does not agree.

On Thursday, September 19, Nomura Securities analysts CW Chung and Heesoo Min released a report stating: Although commodity prices in the current memory market are significantly declining, the upward cycle may still continue. Concerns about HBN oversupply by current investors have been exaggerated, and Nomura Securities expects capital expenditures of major US technology companies to increase by nearly 50% this year. It is still difficult to determine whether the overall AI supply chain is oversupplied.

As shown in the chart below, although the industry's year-on-year growth rate has reached its peak due to base effects, there are two different possibilities after the growth rate peaks—the industry's year-on-year growth rate may narrow to around 50% or it may sharply decline by about 50%.

Nomura Securities believes that the overall earnings of the memory industry may still rise due to the strong growth of HBM and high-end DRAM (such as DDR5, LPDDR5, eSSD). Therefore, the recent excessive decline in memory company stock prices may provide investors with a good buying opportunity.

Recently, the self-driving travel platform Luobu Kuaipao under its operation has become popular, driving Baidu's Hong Kong stocks to surge by more than 12% on 10th, reaching the highest point in over a month.Semiconductor market continues to be under pressureWith storage chip impacted by oversupply and price decline, entering a downturn cycle. On September 13, Morgan Stanley's Seoul branch sold about 1.01 million shares of SK Hynix, two days later, Morgan Stanley downgraded SK Hynix from overweight to underweight, slashing the target price from 260,000 Korean won to 120,000 Korean won, warningMemory industry is heading towards a "winter is coming" situation..

Market concerns about HBM oversupply have been exaggerated.

Nomura Securities predicts that in 2024, HBM production and demand will be approximately 1.4 billion GB, while in 2025, with the CoWoS supply, it may further increase to 2.8-3 billion GB. CoWoS is an advanced semiconductor packaging technology that allows multiple chips to be integrated on a silicon wafer, providing higher bandwidth and lower power consumption.

HBM's supply volume is primarily calculated based on the market share of three major companies, with the total estimated at 112% in 2025 (SK Hynix 50% + Samsung 50% + Micron Technology 12%).

Nomura Securities stated that the total calculated last year was around 105%, leading to market concerns about oversupply, but in reality, oversupply did not occur. This is because, due to the continuous increase in CoWoS production capacity, the demand for HBM exceeded expectations; and some manufacturers faced disruptions in HBM production, leading to a decrease in output.

Therefore, Nomura Securities believes it is still too early to discuss HBM oversupply in 2025. Even if there is some oversupply, it can be adjusted or absorbed through inventory.

It is still difficult to determine whether the overall AI supply chain will be oversupplied in 2025.

At the beginning of this year, the market expected that the capital expenditure of large technology companies in the USA would increase by about 20% year-on-year in 2024. As of September 11, 2024, the market's consensus on the capital expenditure growth of these large technology companies in 2025 is only about 10%. Assuming this consensus forecast is correct, the AI supply chain will be severely oversupplied in 2025.

Nomura Securities does not agree with this consensus - Nomura Securities expects that the capital expenditure of large technology companies in the USA will increase by nearly 50% in 2024, with AI server investments growing by 160%. If the supply of AI servers increases, investments in 2024 will continue to grow.

As for 2025, Nomura Securities believes that these large technology companies striving for market share in the AI era are unlikely to only slightly increase their capital expenditure. While large technology companies are unlikely to expand their capital expenditure indefinitely in the future, the possibility of only a 10% increase in 2025 is also very low. Therefore, it is still difficult to determine whether the overall AI supply chain will be oversupplied.

Editor / jayden