Surging demand, depleted inventories, and storage has become a "seller's market." Morgan Stanley: Investors should not exit the market due to "fear of high prices."

Surging demand, depleted inventories, and storage has become a "seller's market." Morgan Stanley: Investors should not exit the market due to "fear of high prices."

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The demand wave triggered by AI is reshaping the global storage market.

According to ZF Trading Desk, on October 19, Morgan Stanley pointed out in its latest report that the storage industry is in the early to mid-stage of a strong upcycle. Although related stocks have reached new highs, the best gains may yet be to come, and investors should not exit too early out of "fear of heights."

Supply Shortages Intensify, Shift to Seller's Market

Through channel checks, Morgan Stanley found that driven by surging orders from U.S. cloud service customers, storage chip makers have quoted price increases of up to 25% for DRAM and NAND flash for the fourth quarter of 2025. This indicates the market is quickly shifting to the seller's side, with strong upward momentum in prices.

The report emphasized that the current supply-demand imbalance for traditional memory is more severe than expected. DRAM manufacturers’ inventories have plunged to less than two weeks, while NAND flash inventories have also fallen below the long-term average.

The bank expects it will take another four to six quarters for new capacity to catch up with demand, and supply lag issues will persist. Such conditions typically prompt customers to build buffer inventories, further solidifying the seller’s market structure.

"We believe the current upswing is still in the early to mid-stage... A return to historic price highs means there is potential to double from here. We see no evidence that seasonal demand weakness will affect memory pricing into the first quarter of 2026... Such circumstances usually prompt customers to build buffer inventories, reinforcing the seller’s market."

How High Can Prices Go? Morgan Stanley Says Far from the Top

Morgan Stanley believes that current prices still have considerable room to rise before reaching historical highs.

  • NAND Flash: Given strong AI-driven demand, its price is likely to double from current levels, returning to the Q2 2022 peak of about $0.13/GB.
  • DRAM Memory: The price of server memory modules peaked at $10/GB in Q1 2018, whereas the current negotiated price is about $5.4/GB. The report believes, given the potential total addressable market (TAM) for AI memory is expected to surpass traditional general-purpose DRAM by 2027, there is every reason this cycle’s price peak will exceed previous highs.

Overcoming “Fear of Heights,” Earnings Momentum is the Key

Addressing the widespread “fear of heights” among investors, Morgan Stanley bluntly points out that this is a typical cognitive bias.

"New highs usually lead to even higher highs, and this time there are solid earnings to support them; being in the market is more important than trying to time the market. We believe the best days of this rally may still be ahead."

The report stresses that the core driver of stock prices is earnings momentum, not just the AI narrative. Taking SK Hynix and Samsung Electronics as examples: over the past 12 months, SK Hynix's share price rose about 140%, supported by a 62% upward revision in earnings expectations; in contrast, Samsung Electronics’ share price rose about 64%, with earnings estimates up only 14%. This difference clearly shows that “stronger earnings revisions bring stronger share price returns.”

Analysts Shawn Kim and Duan Liu wrote in the report that it’s virtually impossible to time the market precisely. Historical cycles show that “time in the market is more important than market timing” during an uptrend.

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