Global investment bank Morgan Stanley has a notorious reputation among South Korean semiconductor companies and investors. In 2021, during a boom in the memory semiconductor market, the firm released a report titled "Winter is Coming," which significantly impacted the stock prices of Samsung Electronics and SK Hynix. A similar report in 2024, titled "Winter is Approaching," also caused fluctuations in the stock prices of domestic semiconductor firms.
Morgan Stanley has once again drastically lowered its price targets for Samsung Electronics and SK Hynix. Following the Democratic Party's decisive victory in the U.S. midterm elections, the firm predicts that regulatory delays in AI data center investments will lead to declining profitability for both companies after 2028.
According to the financial investment industry on November 10, Morgan Stanley adjusted its price target for Samsung Electronics from 381,000 won to 309,000 won, a 19% decrease. The target price for SK Hynix was cut from 2.6 million won to 1.6 million won, a reduction of 38%. However, the investment rating for both Samsung Electronics and SK Hynix remains at "overweight."
Sean Kim, a Morgan Stanley analyst known as the "grim reaper of semiconductors" in the domestic market, authored the report. He previously issued warnings about the semiconductor industry's downturn in August 2021 and September 2024, leading to significant reductions in the price targets for Samsung Electronics and SK Hynix.
His predictions have generally proven accurate. Following the release of the "Memory, Winter is Coming" report in August 2021, the memory semiconductor market entered a downturn over the next year, with Samsung Electronics and SK Hynix shares falling by 22.7% and 16.8%, respectively. After the "Winter is Approaching" report in September 2024, signs of a slowdown emerged in the general memory market. However, during that period, the stock prices of Samsung Electronics and SK Hynix experienced a brief decline before rising again a year later.
In this latest report, Morgan Stanley focuses on the period after 2028. Sean Kim stated, "The most critical debate in the current memory semiconductor market is whether we can avoid a performance cliff in 2028," adding that concerns are growing about achieving and maintaining growth after 2028 rather than just next year's performance.
The realization of a "blue wave" (a Democratic sweep) in the U.S. midterm elections is also seen as a variable. Morgan Stanley anticipates that some data center construction plans will be delayed following the elections, pushing back a project expected to be operational in 2028, with a capacity of about 5 gigawatts (GW), to 2029. Consequently, the global data center's new facility growth rate is expected to drop from the previously estimated 21% in 2028 to 9%, before recovering to 20% in 2029. During the delay in data center investments, an increase in memory supply could alleviate the current supply shortage and exert downward pressure on semiconductor prices.
The expansion of production capacity among Chinese semiconductor firms and intensified competition in the high-bandwidth memory (HBM) market are also factors that could constrain long-term profitability. Morgan Stanley has lowered its forecast for SK Hynix's HBM operating profit margin for 2027-2028 from the previous 78-80% to about 70%. Samsung Electronics' HBM operating profit margin forecast has also been adjusted down from approximately 80% to 65-72%.
Morgan Stanley explained, "Stock prices often move ahead of a company's fundamentals, reflecting the risk of lowered earnings forecasts as supply catches up with demand and the pace of AI infrastructure development slows in the coming years." The firm concluded that while AI is bringing structural changes to the memory semiconductor industry, the sector still retains cyclical characteristics.
* This article has been translated by AI.
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