Chip cold winter warning? Morgan Stanley is bearish, but analysts refute: the possibility of oversupply is unlikely!

In its research report "Winter Is Coming" released on September 15th, Morgan Stanley made a pessimistic 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 pointed out that due to weak demand for general DRAM and an expected oversupply of AI dedicated high bandwidth memory (HBM), the stock prices of these two companies have fallen sharply. Morgan Stanley downgraded SK Hynix from "hold" to "sell" and significantly reduced its target price from 260,000 Korean won to 120,000 Korean won, citing weakening pricing power. Meanwhile, Samsung Electronics' target price was also lowered by 27.6% to 76,000 Korean won. The report mentioned that as the industry enters the late stage of the cycle, revenue growth and profit margins will face greater challenges. However, not all analysts agreed with this pessimistic forecast. Samsung Securities analyst Hwang Min-seong pointed out that SK Hynix's HBM production capacity is expected to increase from 130,000 wafers per month at the end of this year to 150,000 wafers by the end of 2025, with the company only producing products according to pre-contracted volumes. He also questioned why NVIDIA Corporation (NVDA.US) would seek additional supply from Samsung Electronics if there were indeed an oversupply of HBM. HBM is a high-performance semiconductor chip that supports generative AI devices, high-performance data centers, and machine learning platforms by stacking multiple DRAM chips together. Most chip analysts believe that the HBM market is driven by custom products and customer approval, thus the risk of oversupply is minimal. Taiwanese market tracking agency TrendForce also stated that as the overall average selling price of DRAM is expected to rise by 2025, and the increased penetration rate of HBM is expected to help stabilize the DRAM market, the industry's outlook is "not so pessimistic." Nomura Securities also believes that considering the potential production disruptions of some chip manufacturers, actual oversupply is "unlikely to occur." Shinyoung Securities predicts that 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. In response to this, Shinyoung analyst Park Sang-wook said, "Although there are signs of weak demand for general DRAM, strong demand for HBM will effectively offset this trend." Soft demand for DRAM from mobile devices and PCs In a recent market analysis report, Morgan Stanley pointed out that demand for DRAM from mobile devices and personal computers is slowing down, a view that has been echoed by many analysts. Globally, the personal computer and smartphone markets continue to perform poorly, for example, pre-orders for Apple Inc.'s latest iPhone 16 series have dropped by 13% compared to the previous generation. As a result, some Korean securities firms have lowered their earnings expectations for domestic chip manufacturers for the third quarter. Nevertheless, industry leaders Samsung and SK Hynix have stated that they observe stable demand for memory chips from smartphones and personal computers. Meanwhile, Chinese company Yangtze Memory Technologies is actively expanding its capacity for DDR4 memory chips, a strategy that is increasing pressure on Korean chip manufacturers in price negotiations with Chinese companies, garnering widespread market attention. However, Nomura Securities believes that Korean chip manufacturers will be able to adapt flexibly to market changes. They expect these companies to reduce production of old DDR4 chips and increase production of more advanced DDR5 chips. If market conditions require it, Korean chip manufacturers are also prepared to adjust overall production levels to maintain competitiveness and profitability. Stock price outlook Analysts have different views on the stock price outlook for SK Hynix. Future Assets Securities maintains a target price of 260,000 Korean won for SK Hynix and expects the chip manufacturer's operating profit to increase by 71% by 2025. Mirae Asset analyst Kim Young-gun also stated that with the increasing profitability of HBM, SK Hynix is expected to perform well even in the chip industry's winter. Some analysts suggest that investors wait until the end of this year as it is widely expected that third-quarter earnings will decline. Samsung Securities analyst Hwang predicts that there may be a market rebound around November, after the U.S. presidential election, which may also stimulate the economy. Overall, despite Morgan Stanley's report raising concerns in the market about the chip industry, many analysts believe that the customization and customer recognition characteristics of the HBM market, along with the flexible strategies of Korean chip manufacturers, will help alleviate the risk of oversupply and maintain stable industry growth.