The AI boom is changing priorities in the tech hardware sector in Greater China. The experts at Morgan Stanley are now betting on these stocks.
• Morgan Stanley sees opportunities in the Greater China region’s tech hardware sector
• Focus is on optics specialists
• Warning of competition and demand risks
Morgan Stanley has identified its favorite stocks in the tech hardware sector in Greater China. According to Investing.com, the focus is on manufacturers of optical components that could benefit from the trend towards higher quality smartphone cameras and new applications in the areas of virtual and mixed reality. This analysis is based on a residual income model with which the investment bank evaluates the long-term value potential of the company.
Largan Precision is Morgan Stanley’s top pick
The main favorite is Taiwan-based Largan Precision, which is mainly engaged in the research, development, design, manufacture and sales of various types of optical lens modules and optoelectronic components, as well as the provision of technical after-sales services. For the company, Morgan Stanley’s residual profit model – assuming a cost of equity of 8.5 percent – predicts an average annual growth rate of net profit (CAGR) of seven percent between 2026 and 2036 and a perpetual growth rate of three percent.
The investment bank views the possible stronger demand for premium smartphones as particularly positive. Morgan Stanley also sees potential in faster adoption of 1G6P technology and periscope lens systems. On the other hand, the bank also points out risks. These include increasing competition, which could weigh on sales prices and margins, as well as weaker demand for high-priced smartphones.
Genius Electronic Optical benefits from Apple ecosystem
Morgan Stanley’s preferred stocks in the sector also include Genius Electronic Optical, a Taiwan-based company primarily engaged in the manufacture and sale of optical lens products and lighting products. Here, the residual income model – assuming a cost of equity of 8.5 percent – predicts a medium-term average net profit growth of four percent and a perpetual growth rate of three percent.
The investment bank is particularly positive about possible market share gains for iPhone components. In addition, Morgan Stanley sees opportunities from stronger demand for Apple’s mixed reality products as well as higher delivery figures in the area of virtual and mixed reality. On the risk side, possible delays in Apple’s mixed reality products as well as potential losses of market share in the iPhone supply business are mentioned.
Focus on premium technology and new device classes
Morgan Stanley’s analysis shows that the investment bank in the hardware sector is currently focusing primarily on companies that could benefit from more technologically sophisticated camera and optics solutions. The focus is particularly on the trend towards AI-enabled premium devices, periscope cameras and virtual and mixed reality applications.
What does this mean for private investors?
For investors, Morgan Stanley’s assessment suggests that there is currently potential in the Asian tech hardware sector, especially among specialized suppliers with technological niche positions.
At the same time, the analysis also shows the risks in the industry: companies remain heavily dependent on demand for premium smartphones and on individual major customers such as Apple. In addition, intense competition and possible delays in new device classes could weigh on expectations. In addition to growth opportunities, private investors should therefore also take into account the high dependency on product cycles and global consumer demand.
Thomas Zoller, editorial team at finanzen.net
This text is for informational purposes only and does not constitute an investment recommendation. finanzen.net GmbH excludes any claims for recourse.
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