Semiconductor Rebound! Morgan Stanley Warns: 'Don't Be Scared by the Past' – Memory Shortages May Worsen Until 2028

After the Philadelphia Semiconductor Index (SOX) officially entered bear market territory last Friday, memory and chip stocks rebounded on Monday (20th). Morgan Stanley stated that memory chips remain a key bottleneck for artificial intelligence (AI) development, and demand is expected to stay strong.

Morgan Stanley analyst Joseph Moore pointed out that the current cycle contains many 'false signals' that could mislead investors.

He said: 'This cycle is entirely driven by data center demand, so noise from consumer electronics, PC, and smartphone markets inevitably affects spot market prices and inventory levels. We believe recent factors dragging down chip stocks mainly reflect these end markets, not AI data center demand.'

Moore noted that supply tightness in memory caused by data center demand shows no signs of easing so far, allowing memory manufacturers to maintain pricing power. He forecasts memory prices in Q3 2024 will rise at least 25% compared to Q2.

He believes that relying on past memory cycles to find 'sell signals' would misjudge the current market situation.

'AI is consuming massive amounts of DRAM, leaving insufficient supply for other industries. No matter which market we observe, DRAM has clearly become the true bottleneck for AI development,' he said. This shortage has already slowed PC and smartphone production, and cloud service providers are even willing to pay higher prices for memory rather than stockpile inventory.

Moore expects memory supply shortages to continue worsening until 2028. 'AI demand for memory far exceeds supply, and in the short term, we see no change in this situation.'

Although memory manufacturers have mitigated memory constraints through long-term contracts and AI chip redesigns—reducing cyclical volatility—Moore believes this will actually extend the memory boom, making related stocks more favorable in the long run.

While Moore still considers Nvidia (NVDA-US) and Broadcom (AVGO-US) AI compute chip stocks as 'the most valuable investments in the market,' he sees memory stocks gradually catching up and now presenting a solid entry opportunity.