Morgan Stanley: Why is the risk-reward ratio of buying storage better than buying CPUs?
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The surge of AI agents is accelerating CPU demand, but Morgan Stanley believes that compared to directly investing in Intel or AMD, capturing this trend through memory stocks such as Micron and SanDisk offers a better risk-return ratio.
According to Zhuifeng Trading Desk, Morgan Stanley published a semiconductor industry report on April 20 stating, recent challenges in Intel’s server roadmap and uncertainty in its foundry strategy, as well as AMD’s stock price being mainly driven by GPUs rather than CPUs, both make the investment logic for directly going long on CPU stocks increasingly complex.
It also noted that memory is not only a direct beneficiary of accelerated CPU demand, but also benefits from multiple structural growth trends, such as the explosion in demand for HBM and enterprise-grade SSDs (eSSD).
Hyperscale cloud providers’ demand for data center memory is expected to remain tight at least until the end of 2027, with the supply gap still at an early stage. Meanwhile, long-term procurement agreements between memory suppliers and customers are being implemented more rapidly, bringing substantial cash inflows in the form of prepayments.
CPU demand accelerates, but direct beneficiary paths hide complexity
Long-term CPU growth is estimated at about 30% to 40%, far above historical averages, but still lower than the anticipated growth for GPUs.
On the supply side, Intel’s production capacity is clearly insufficient. The parallel acceleration of demand and supply constraints make quantitative assessment of the overall trend more difficult.
More importantly, for Intel and AMD, although the server business is central to future profits, the valuation drivers for both companies are not solely based on server CPUs—Intel’s investment theme is more oriented toward foundry, while AMD’s long-term narrative centers on GPUs.
This reality makes the simple equation of “buy CPU stocks when the CPU sector is hot” difficult to hold.
Intel: Server price hike logic holds, but roadmap risks remain
The rationale for raising Intel’s target price is: higher average selling prices (ASP) for servers and shipment growth. It forecasts Intel’s Data Center & AI (DCAI) revenue in 2026 to reach about $21.8 billion, up approximately 30% year-over-year, with server unit shipments up 14% and ASP up 20%.
However, it is unlikely that Intel will truly regain market share from AMD. The next-generation server product Diamond Rapids is reported to have significant shortcomings, with negative reviews coming directly from industry sources.
AMD’s Venice platform is seen as “a clear significant improvement” and with TSMC’s N2 process, supply is not tight, making Intel’s market share capture logic based on its own fabs difficult to sustain.
It is also expected that Intel’s PC business will be under pressure, with desktop revenue forecast to decline 16% and laptop revenue to fall 8% in 2026, mainly due to higher GPU prices shrinking the DIY market and AMD continuing to grab market share.
In addition, the long-term prospects for Intel’s foundry business remain questionable, with the likelihood of positive DCF (discounted cash flow) “still quite far off,” despite some focus on the Terafab partnership.
AMD: Product lead, but GPU is the real stock price driver
AMD’s server CPU products are stronger, making it a bigger beneficiary of the CPU cycle, and its share in the general-purpose CPU market is expected to continue expanding, with the Venice platform further solidifying this advantage.
However, the fundamental issue with AMD’s current share price is: the vast majority of the 2030 revenue target comes from GPUs, so improvements in the GPU business are the more critical variable driving the stock.
Last quarter’s experience confirmed this—server business performed well, but because the market focus was on GPUs, the share price still retreated significantly.
Regarding gross margin, management remained cautious about forecasts after Q1, mainly because AMD needs to allocate some CPUs to promote GPU ecosystem adoption, which may entail targeted discounts, thereby limiting overall profit margin improvement.
Memory stocks: Low valuation plus multiple benefits, optimal risk/reward ratio
Micron and SanDisk are the preferred targets for capturing the CPU and AI demand trend, mainly due to significant valuation advantages. According to the 2026 forecasts in the report, MU and SNDK currently trade at about 5.7x and 11.5x PE, with clear upside potential.
On the demand side, hyperscale cloud providers are unable to meet data center memory needs at least until 2027, with the supply-demand gap still in a “very early stage.”
Occasional softness in spot prices (such as retail aftermarket modules) is seen as irrelevant to the structural shortage in data centers and not meaningful for reference.
On long-term contracts, it is expected this year will see clear evidence (in the form of large cash inflows and deferred revenue) that prepayment agreements are being fully executed.
Micron target price $520, SanDisk target price $690, both maintained at “overweight” rating. Recognizing that AI agents will drive faster CPU demand, memory stocks provide the optimal risk-reward profile.
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