After the semiconductor market received increased attention in 2023 as a result of the AI hype, Morgan Stanley believes that things will continue to improve in 2024. The US investment bank particularly highlighted two companies.
• Chip market attracts more attention due to AI boom
• Morgan Stanley expects chip sales to increase
• Samsung and SK hynix were singled out for praise
Since 2023 gave new impetus to the artificial intelligence trend, particularly in connection with the launch of the text robot ChatGPT, the market for chips has also come into the spotlight again. The market struggled with delivery bottlenecks in 2023 and was affected by weak sales.
Morgan Stanley foresees increasing chip sales in 2024
However, this will probably be over in 2024, estimates the US investment bank Morgan Stanley, according to a report obtained by the Business Times. The bank predicts that a cyclical recovery is likely to take place after the rather mixed winter. As a result of this forecast, the credit institution has also adjusted its expectations of rising memory chip prices upwards. The bank states that, especially in the USA, memory chip stocks are currently much cheaper than in previous cycles when looking at adjusted earnings per share. The chip industry is now entering a cycle of accelerated growth, driven by significant growth in demand.
Incidentally, Morgan Stanley is not alone in this assessment. According to Reuters, the consulting firm Gartner also predicted a recovery for the semiconductor industry. Specifically, Alan Priestley, analyst at Gartner, assumes that chip sales are likely to rise to $624 million in 2024, which would correspond to growth of around 17 percent.
Rising chip prices in 2024
Morgan Stanley bases its positive forecast on increasing inventories in the downstream stages of production. In addition, supply would still be far behind demand. This is expected to lead to sharp increases in chip prices in the first quarter of 2024: “We assume that DRAM and NAND prices will increase in the first quarter […] will increase by 20%, doubling our previous forecast. We previously expected an increase of 8-13% for DRAM and 5-10% for NAND. DRAM (Dynamic Random Access Memory) chips are used in data processing, while NAND chips can store data even without power.
Chip customers at the downstream production stage have already started to replenish their inventories. This can be observed particularly among Chinese smartphone original equipment manufacturers. The topic of artificial intelligence is also likely to remain present in 2024 and continue to drive chip demand: “We also need to take into account the impact of the $10 billion market growth for HBM chips in 2024 and the sudden emergence of AI demand, leading to prolonged could lead to delivery bottlenecks,” says the Morgan Stanley report. HBM chips are high-bandwidth semiconductors that are used particularly in high-performance computing.
Samsung shares and SK hynix shares with significant upside potential
Overall, Morgan Stanley is optimistic about the performance of memory chip stocks in 2024 and expects earnings growth to accelerate. In its report, the bank highlights two specific companies whose EPS outlook the financial institution raised for 2024, namely the South Korean chip giants Samsung and SK hynix. The investment bank advises overweighting both stocks and issued price targets that still imply significant upward potential for the shares. According to Wall Street Online, the new price target for SK hynix is 210,000 won, which, based on the most recent closing price of 142,400 won, would mean an increase of around 47.5 percent. The chip manufacturer is likely to be driven by the growth of its HBM market share and improvements in raw material prices. A record level could then be reached by the end of 2024 or beginning of 2025.
For Samsung, the price target is currently 95,000 won, which corresponds to a possible price increase of 19.34 percent. Morgan Stanley assumes that price increases for memory products will increase profit margins. In addition, Samsung is likely to benefit from the launch of its smartphone S24 Edge, planned for the first quarter of 2024, which will already come with integrated AI technology. In general, Morgan Stanley assumes that the topic of mobile AI (also called edge AI), i.e. artificial intelligence that is not used in the cloud but on mobile devices, will be of greater importance in 2024 and may already be in the smartphone -Upgrade cycle is included.
Editorial team finanzen.net
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