Analysts rebut Morgan Stanley’s chip winter view; oversupply unlikely

Morgan Stanley’s recent view that the global chip industry faces an imminent winter and companies like SK Hynix Inc. will suffer is exaggerated and a projected oversupply of HBM, or AI chips is unlikely to happen soon, analysts said.

In its Sept. 15 research note titled “Winter Looms,” the US brokerage firm, warning of an AI bubble, presented a bearish view on South Korean memory chipmakers, citing weak demand for general DRAM and an estimated oversupply of AI-specific high-bandwidth memory (HBM).

Morgan Stanley also cut its rating on SK Hynix two notches to underweight from overweight and slashed its price target to 120,000 won from 260,000 won, citing its fading pricing power.

It also cut the target price for Samsung Electronics Co. by 27.6% to 76,000 won.

“Memory conditions are beginning to deteriorate. It will get tougher for revenue growth and margins from here as we move past late-cycle conditions,” Morgan Stanley said in the research report.

Shares of the two Korean chipmakers tumbled following Morgan Stanley’s pessimistic view.

On Thursday, the first trading day in Korea after a long Chuseok holiday, SK Hynix dropped as much as 11% to the lowest level since Feb. 8 before closing down 6.1% at 152,800 won.

Samsung ended 2% lower at 63,100 won.

The following day, however, SK Hynix rose 2.8% while Samsung closed down 0.2%.

OVERSTATED

Several analysts said Morgan Stanley’s views are overstated.

Samsung Securities Co. analyst Hwang Min-seong said SK Hynix's HBM production capacity will increase from 130,000 units a month at the end of this year to 150,000 units by the end of 2025, and the chipmaker will only produce pre-contracted volumes.

"If an HBM oversupply is expected, why would Nvidia seek an additional supply from Samsung Electronics?” he said.

HBM is a high-capacity, high-performance semiconductor chip, stacking multiple DRAM chips on top of one another. It powers generative AI devices like ChatGPT, high-performance data centers and machine-learning platforms.

Most chip analysts agreed that the HBM market is driven by customized, client-approved products, making oversupply less likely.

Taiwan-based market tracker TrendForce said it is “less pessimistic,” given that the overall DRAM average selling price is expected to rise by 2025 and the increasing penetration of HBM is forecast to help stabilize the DRAM market.

Nomura Securities said that considering potential production disruptions at some chipmakers, an actual supply glut is “unlikely to occur."

Shinyoung Securities Co. said it expects next year's global HBM demand and supply to reach 220 billion gigabytes (GB) and 190 billion GB, respectively, leading to continued short supply.

“Weak demand for general DRAM will be offset by strong HBM demand,” said Shinyoung analyst Park Sang-wook.

WEAK DRAM DEMAND FOR MOBILE DEVICES, PCs

In its recent report, Morgan Stanley highlighted the slowing demand for mobile devices and PCs – a view shared by many analysts.

The global PC and smartphone markets have been sluggish, with reports indicating that pre-orders for Apple Inc.’s iPhone 16 series were down 13% compared to its predecessor.

Several Korean securities firms recently lowered their forecasts for domestic chipmakers’ third-quarter earnings.

Both Samsung and SK Hynix, however, said demand for memory chips in smartphones and PCs remains stable.

Market concerns have also risen after China's ChangXin Memory Technologies began aggressively expanding its DDR4 production capacity, which in turn put Korean chipmakers in a difficult situation in price negotiations with Chinese mobile companies.

Nomura Securities, however, said it expects Korean chipmakers to flexibly respond by reducing the production of the older DDR4 chips and increasing advanced DDR5 output.

If necessary, Korean chipmakers will adjust overall production levels, according to Nomura.

STOCK PRICE OUTLOOK

Opinions on SK Hynix's future stock price are divided.

Mirae Asset Securities Co. said it maintains its target price for SK Hynix at 260,000 won, with its forecast for a 71% operating profit increase in 2025 for the chipmaker.

"Given that the industry’s HBM profitability is expected to rise, SK Hynix, the top HBM supplier, will stand out even in a chip winter,” said Mirae Asset analyst Kim Young-gun.

Some analysts urged investors to wait until the end of this year, citing the market consensus for lower third-quarter earnings.

"A rebound can be expected around November following the US presidential election. A potential economic stimulus from interest rate cuts is also possible by then,” said Samsung Securities’ Hwang.

Write to Sung-Mi Shim and Tae-Ung Bae at smshim@hankyung.com

In-Soo Nam edited this article.