Chip boom spreads to memory; Morgan Stanley: NAND better than DRAM, significant upside potential.
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The AI-driven chip frenzy is rapidly spreading from GPUs and other logic chips to the memory sector. Morgan Stanley believes that the memory market, especially flash memory (NAND), is in the "early stage" of a prolonged upcycle.
On September 23, Wallstreetcn reported that, driven by robust memory demand from AI data centers, Samsung significantly raised the prices of memory and flash memory products this week, with DRAM memory price increases as high as 30%, and lead times rising from one month to over half a year. Competitors such as Micron and SanDisk have also followed with price hikes.
According to Hard AI, Morgan Stanley released a research report on the same day, pointing out that the AI-driven chip investment craze is spreading from GPUs to the memory field. The report emphasizes that the current market is at a key juncture of cyclic shift, and the next recovery cycle in memory prices is expected after a double bottom in 2026.
Morgan Stanley believes that compared with the widely followed DRAM memory and hard disk drives, the flash memory market is showing even greater upward potential due to a sharp reversal of its supply-demand pattern.
Therefore, the report emphasizes that investors should focus on pure flash memory manufacturers such as Kioxia and SanDisk, as well as integrated manufacturers like Samsung, SK Hynix, and related module manufacturers.
AI Narrative Spreads, Memory Steps Up as the New Mainstar
According to Morgan Stanley's analysis, the semiconductor industry, especially the memory sector, is at a key cyclical turning point.
Historically, the Philadelphia Semiconductor Index (SOX Index) has shown cyclical moves from "frenzy" to "pessimism" and back, while the current market is in the "optimistic stage."
The charts in the report show that the memory cycle has decoupled from the logic chip cycle in the AI era, but is now showing signs of catching up.
A key factor supporting this judgment is the normalization of inventory levels. Data shows that after a prolonged period of de-stocking, inventories in the memory industry are returning to healthy levels, laying the foundation for the next round of price increases and demand recovery.
In addition, the relationship between the ISM PMI index, a gauge of manufacturing sector prosperity, and the growth of non-AI semiconductor revenues also suggests a recovery is coming.
Morgan Stanley believes that as the macroeconomic environment stabilizes and demand gradually warms, the fundamentals of the memory market are improving and the industry is about to usher in a new upcycle.
"Double Bottom" May Appear in Prices, Long-Term Uptrend Expected
Although recovery is in sight, short-term price trends could be volatile.
Citing data from TrendForce, Morgan Stanley predicts that memory pricing may face a "double bottom" situation—that is, after a short-term rebound, prices may fall again before entering a sustained upward channel.
Specifically, contract prices for DRAM and flash memory in the second quarter of 2025 have already been revised upwards, suggesting initial recovery in market confidence.
For example, the blended average selling price of desktop DRAM is expected to rise 3-8% in the second quarter. However, some product categories may see prices flatten or decline slightly in Q4, only to see stronger gains in 2026.
The report indicates that despite the complexity of price trends in the second half of 2025, the market's expectation for commodity memory to enter an upcycle in 2026 is clear. Among them, the recovery momentum of the flash memory market is particularly notable, which is one reason the bank prefers flash memory over DRAM.
NAAD Short-Term Demand Surge
The report emphasizes, cloud service providers (CSPs), due to AI inference workloads and tight hard disk drive supply, are placing advanced orders for enterprise-grade SSDs (eSSD) at unprecedented scale and speed, creating huge expected supply gaps.
This year, cloud service providers (CSPs) broke with convention, starting storage demand negotiations for 2026 months earlier than the traditional October or November window.
This order boom led to soaring share prices of flash-related companies: as of September 23, SanDisk shares had surged 95% and KIOXIA 75%, far outpacing the SOX index’s 10% rise in the same period.
The core driver of this frenzy is better-than-expected nearline enterprise SSD (NL eSSD) orders.
Morgan Stanley noted that, just for four major customers, NL eSSD order volume has reached about 200EB, not including another 150EB of AI-related demand.
Despite concerns about "double ordering" in the market, Morgan Stanley believes that even in its most optimistic scenario, assuming NL eSSD shipments reach only 90EB in 2026, the market would still face a 7% supply gap. Any demand beyond this figure would further enhance suppliers’ pricing power.
(Optimistic forecast: NL eSSD shipments about 90EB, meaning a 7% supply shortfall in 2026)
The surge in demand directly translates into strong price increases.
Currently, some suppliers have even suspended offering quotes for 2026, waiting for clarification on production allocations. The report expects that after near double-digit increases in Q4 2025, comprehensive prices for flash memory will rise another 15-20% in the first half of 2026.
(Estimated contract prices for flash memory)
Even considering Yangtze Memory’s global market share could rise from 12% in 2026 to 15%, this 3% incremental increase is expected to mostly serve the Chinese domestic market and will not have a material impact on global supply-demand dynamics.
Disciplined Flash Memory Supply
In sharp contrast to the demand-side surge, the supply-side response is highly disciplined and lagging.
Although analysts have raised their capital expenditure estimates for flash wafer fabs in 2026 to $13.8 billion (close to the bull-case scenario of $15 billion), capex recovery for flash memory still lags behind that of DRAM. The main reasons are:
First, after prolonged losses, manufacturers rigorously adhere to capital discipline and are reluctant to launch large-scale capacity expansions.Second, within limited capital budgets, higher-margin DRAM (especially HDD) businesses are prioritized for investment and capacity allocation.
This "capital discipline" means that, even in the face of surging demand, effective flash memory capacity cannot quickly catch up in the short term, thus prolonging and aggravating the current supply shortage—providing fundamental support for sustained price increases in flash memory.
Focusing on Core Investment Targets and Valuation Potential
The report notes that in this flash memory supercycle sparked by AI, choosing the right investment target is crucial. We are still in the early stages of the cycle: pricing negotiations, new customer acquisition, and traditional demand recovery bring further upside potential.
Regarding specific manufacturers:
Kioxia: As a pure flash manufacturer, its business is highly correlated with the flash cycle. Despite high financial leverage, in an upward cycle this means huge profit elasticity. Its advanced BiCS-8 technology puts it in a strong position in the eSSD market and is expected to deliver robust growth. The price/earnings ratio of 7.2 based on expected FY2027 EPS is considered a reasonable valuation benchmark.
SanDisk: Although eSSDs only account for about 13% of its bit shipments, below the industry average (about one-third), it will be a major beneficiary of the broad-based flash price surge. With the launch of its next-gen BICs8 products, its eSSD share should rise. The report highlights its clear path to profit growth and expects EPS of more than $10. With the typical P/B (NTM) multiple of 2x in upcycles, its target price could be about $140.
Samsung and SK Hynix: As giants in the storage market, they will benefit from the strength of the whole storage commodity cycle, especially in flash memory.
Module manufacturers: Such as Longsys and Phison will also benefit from rising flash commodity prices.
(2026 flash memory chip output structure)
This article is from the WeChat public account "Hard AI". For more cutting-edge AI news, please click here.
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