Morgan Stanley's December 13 report once again raised the price increase expectation of memory chips, pointing out that from the perspective of revised earnings per share, U.S. stock storage stocks are now much cheaper than the previous cycle, and the memory chip industry will enter a period of accelerated cyclical growth and significantly higher demand.
Da Mo pointed out in the report that the downstream replenishment of inventory, the supply is far below the demand, and the memory chips ** are expected to be significantly ** in the first quarter of next year**: we estimate that DRAM and NAND ** will be **20% in the first quarter of next year**, and the latest expectation is that the increase in DRAM ** is 8% to 13%, and the increase in NAND ** is 5% to 10%. ”
Downstream customers have begun to replenish inventory, Chinese smartphone OEMs will see a significant increase in orders in the first quarter of next year, and computer ODM OEMs are also building up inventory. Smartphone manufacturers will restock their inventories and bring them back to normal levels (4 to 6 weeks for mobile DRAM and 6 to 7 weeks for NAND).
From the perspective of supply and demand, after a significant reduction in production, the output of memory chip manufacturers is far lower than demand, and with the improvement of demand, the prospect of next year will be clearer.
Taking it a step further, Da Mo pointed out that artificial intelligence (AI) demand will further boost memory chips**: we also need to consider the impact of the long market size of $10 billion in HBM chips next year, and the sudden emergence of AI demand will lead to a prolonged shortage**. ”
In addition, while the majority of AI applications are deployed in the cloud, the need for edge computing will become more common from 2024 onwards (mobile AI) and may gradually enter the smartphone upgrade cycle.
Overall, Da Mo believes that with the annual increase in earnings per share, storage stocks tend to outperform, and now they have just entered the mid-cycle optimistic stage, with the DRAM spot ** increasing by -16% year-on-year, which is still far from the peak level. Valuations aside, the memory chip cycle has recovered from the lows in the first quarter of this year and will improve further into next year.
According to the latest industry data, Da Mo raised the earnings per share estimates of Samsung and SK hynix, and expects Hynix to be profitable in the fourth quarter and enter a profit cycle driven by HBM market share growth and a significant improvement in commodities**, reaching record levels by the end of next year and early 2025. Samsung, on the other hand, will quickly improve its profit margins through higher storage prices and may benefit from the AI-infused S24 Edge product, which will be launched in the first quarter of next year.