Has storage "hit the ceiling"?

Morgan Stanley believes that the global memory chip industry is approaching the "peak rate of change," but this does not signify the end of the cycle. According to Chasing Wind Trading Desk, Morgan Stanley stated in its July 6 research report that the current three main controversies in the memory chip market are: **whether the price hike cycle has peaked; why long-term agreements (LTA) have failed to drive revaluation; and whether this is the top of the cycle or a mid-bull market adjustment**. The core conclusion can be summarized in one sentence: **the rate of change in price increases is hitting its ceiling, but the cycle itself has not ended**. Morgan Stanley believes that as the biggest AI computing power buyers are rumored to be selling idle capacity, and enterprises are increasingly pushing for "token minimization," the momentum for gains in the memory sector is fading. This means that before the upcoming earnings season, related stocks will face short-term price weakness and extremely high volatility. The market is currently very crowded, and funds are preparing to rotate into lagging sectors. Morgan Stanley’s baseline advice: **Still bullish in the long run (expecting a 35-40% profit growth in 2027), but caution is needed for short-term pullbacks.** ## Three Core Controversies: What is the Market Debating? Morgan Stanley points out that in dialogues with investors over the past week, three core controversies repeatedly came up, key to understanding the current movements in the memory sector. **Controversy 1: Is computing power really oversupplied?** There’s an unverified rumor circulating in the market—one of the largest capital expenditure players in AI is said to have excess computing power available for sale. The bearish interpretation: if hyperscaler computing power is oversupplied, the construction of AI infrastructure may itself be in oversupply. But Morgan Stanley offers another interpretation: this is just enterprises optimizing capital return and monetizing idle infrastructure, which is not equivalent to genuine computing power overcapacity. **The real validation moment will be Q2 2026 earnings season**—if hyperscalers maintain or raise their capital expenditure guidance, it will be a good buying opportunity for memory stocks; if they cut guidance, the oversupply narrative will continue to ferment. **Controversy 2: The battle between "maximizing" and "minimizing" token consumption** A new phenomenon in AI application rollout: many enterprises once encouraged employees to generate as many AI tokens as possible ("token maxing"), but this led to IT budget overruns, prompting firms to seek more affordable alternatives. Manifestations include: - More companies are adopting open-source large models (notably those from China) for basic queries; - Layering a "orchestration layer" on cutting-edge models, diverting simple tasks to open source and reserving complex tasks for advanced models; - Market focus is shifting to: how token providers will reflect this trend in earnings, and their guidance for the second half of 2026. **Morgan Stanley’s conclusion: Q2 2026 (June quarter) doesn’t pose much risk for the AI supply chain, but market concern is now focused on the impact of cheaper tokens on H2 guidance.** **Controversy 3: Why haven’t LTAs triggered a revaluation after signing?** Long-term purchase agreements (LTAs) should be a catalyst for memory stock revaluation, but market response has been tepid. Morgan Stanley explains: **the market remembers well—previous LTAs were either renegotiated, or ultimately forced clients to accept unnecessary inventory (similar to semiconductor companies during COVID).** Of course, some believe current memory LTAs are structurally meaningful (rather than cyclical), provided AI demand remains strong. But **whether earnings expectations can continue to be revised upwards remains the biggest uncertainty for investors**—especially when it comes to how and when memory prices will again exceed expectations and push up 2028 EPS; the timeline is very unclear. ## Peak Rate of Change: Three Dimensions Peaking Simultaneously Morgan Stanley clearly points out that the memory industry is nearing the "peak rate of change," reflected in three dimensions: **YoY pricing:** DRAM price year-on-year increases have dropped significantly from Q1 highs and are expected to continue narrowing in coming quarters. **Inventory changes:** Improvement in the inventory cycle is leveling out. **EPS revision breadth:** DRAM sector's earnings revision breadth has reached historic highs (currently about 89%), with limited room for further upward revisions. **This "peak rate of change" signal is the core reason for a phased consolidation in memory stocks.** Notably, since the generative AI wave emerged in November 2022, the memory sector has undergone three cyclical corrections (corresponding to the US-Iran conflict -15%, profit-taking after sharp rises -32%, so-called "reciprocal tariff day" -20%, and the current -17% correction). Morgan Stanley characterizes these corrections as **normal adjustments in a structural bull market**, not the start of a bear market. Meanwhile, Morgan Stanley points out that the most direct pressure on the memory sector comes from **holding positions**, rather than fundamental collapse. **Memory stocks are among the most heavily concentrated holdings in the market.** The recent increase in volatility has made it increasingly difficult to maintain historically high net exposures—even amid rising spot prices and volatility, this is becoming more obvious. Over the past week, multiple investors conveyed to Morgan Stanley their heightened sensitivity to this dynamic and strong interest in expanding "laggard opportunities." **The recent weakness in hyperscaler stocks may be a leading signal that memory stocks (as core beneficiaries of AI spending) are about to underperform the broader market.** From a seasonal perspective, the current window is also a relatively tough period for the overall market. Finally, Morgan Stanley makes clear that **at this stage, hyperscaler earnings statements have more impact on memory stock prices than management commentary from the memory companies themselves**—because memory companies are likely to remain more optimistic given this point in the cycle. For AI spenders, the "token maximization" effect may support Q2 2026 results, but **whether Q3 2026 guidance falls short of market expectations will be the next important controversy**—token usage optimization, competition from low-cost open source LLMs, and “chipflation” are all possible downside risks to margins. ~~~~~~~~~~~~~~~~~~~~~~~~ The above content is from [Chasing Wind Trading Desk](https://mp.weixin.qq.com/s/uua05g5qk-N2J7h91pyqxQ). For more detailed interpretation, including real-time insights and frontline research, please join [Chasing Wind Trading Desk Annual Membership](https://wallstreetcn.com/shop/item/1000309).  **Risk Disclaimer** The market carries risk; invest with caution. This article does not constitute personal investment advice, nor does it take into account specific users' unique investment objectives, financial situations, or needs. Users should consider whether any opinion, viewpoint, or conclusion in this article fits their own circumstances. 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