Semiconductors used in the field of artificial intelligence have long-term prospects for a high level of demand, which caused a change in the direction of an optimistic assessment of the attitude of Morgan Stanley specialists to the future application of chip stocks in Greater China, South Korea, and Japan.

A leading American bank holding has upgraded the rating of the Chinese semiconductor sector to attractive from linear. The broker also increased the target prices for South Korean companies Samsung Electronics and SK Hynix. The rating of the Japanese chip sector has also been upgraded to attractive from linear. Local manufacturer precision instruments Disco has risen to overweight.

Morgan Stanley analysts, in a note published last Thursday, July 6, suggested that technological deflation and stable demand for artificial intelligence-based technologies will create something like a base for a new logic semi-upcycle. They also noted that there is a kind of pattern in the space of historical experience, according to which the reversion of semi-inventory days is a strong signal for the growth of the value of stocks.

Data from the Semiconductor Industry Association for May of this year recorded an increase in revenue in the relevant area by 1.7% compared to the indicator that was recorded a month earlier.

Morgan Stanley is currently reinforcing optimistic expectations in its forecasts regarding the activities of chip manufacturers in Asia in the foreseeable future. Special attention should be paid to the fact that the improvement in expectations is a dynamic that was formed more than six months ago. In October 2022, analysts of the bank holding raised the ratings of some companies engaged in the production of chips in South Korea and Taiwan. Since then, the total number of microchips in both countries has increased by more than 27%.

Over the past two weeks, a sharp increase in the level of demand for semiconductors for artificial intelligence has been recorded. Against this background, the revenue forecasts of such industry representatives as, for example, Taiwan Semiconductor Manufacturing were revised. This company recommended investors take part in the smartphone’s recovery. The firm Will Semiconductor was transferred to overweight.

On a separate note, Morgan Stanley analysts, including Shawn Kim, predicted that South Korean chip manufacturers would be in a favorable position as a result of the growth of the DRAM market. Experts suggest that the total income of companies can increase almost 10 times, and reach the mark of $19 billion. In their opinion, this rapid growth will occur within the next four years. Analysts also noted that in this context, SK Hynix has the greatest prospects.

At the same time, Samsung reported financial results for the second quarter of 2023, which turned out to be the worst since at least 2009. The company’s sales volumes decreased by 22% compared to the previous quarter, amounting to $46 billion in monetary terms. Samsung’s operating profit fell 96% to $46 million.

Shawn Kim also predicts an increase in expectations for EPS power in the coming years amid the emergence of high-bandwidth memory and growing demand for artificial intelligence servers.

As we have reported earlier, New US Ban To Restrict Access of China’s AI Firms to Chips.