Morgan Stanley Maintains Rating on South Korean Tech Sector, Target Prices for Samsung and SK Hynix Indicate 65% and 74% Upside Potential

On August 7, Morgan Stanley stated in its Asia Tech report released on August 6 that the most severe round of corrections in the memory industry appears to have ended, with market focus shifting from merely chasing price increases to buybacks, long-term agreements, and capital returns. The firm referred to this adjustment as a "small wrinkle" in the aging cycle, believing that valuations now offer an attractive tactical re-entry opportunity.

The report maintains an "Attractive" rating for the South Korean tech sector and keeps the target prices for Samsung Electronics and SK Hynix unchanged. The target price for SK Hynix is set at 2.6 million KRW, corresponding to an upside potential of approximately 74%; the target price for Samsung Electronics' common stock is set at 381,000 KRW, corresponding to an upside potential of about 65%, with Samsung still being the firm's Top Pick.

Morgan Stanley's assessment is not solely bullish on the cycle. The firm acknowledges that the price increase of DRAM may slow down starting in the fourth quarter, inventories are also on the rise, and new supply is gradually entering the market, making it more challenging for future earnings to significantly exceed expectations. However, demand for AI remains strong, with cloud providers generally indicating insufficient computing power; the firm's cloud capital expenditure tracker has raised its growth forecast for 2027 from 14% to 29%.

The report also emphasizes that long-term supply agreements will be key to the re-evaluation of memory stock valuations. Samsung plans to include 60%-70% of its capacity in long-term contracts, while SK Hynix has completed negotiations with about 10 customers, and Micron, SanDisk, and Kioxia are also expanding similar arrangements. If these agreements can withstand the downturn cycle, the market will be more willing to assign higher valuation multiples to memory stocks.

Recently, storage stocks like SanDisk and Western Digital have shown significant volatility after earnings reports, indicating that AI storage transactions have entered a more discerning phase. Morgan Stanley still prefers DRAM and traditional memory categories, including DDR4 and NAND SLC, where demand bottlenecks are most evident, while being relatively cautious about memory module manufacturers. For investors, the logic for rising memory stocks will shift from "prices continuing to soar" to "sustained AI demand, contract volume locking, cash flow release, and buyback realization."