Morgan Stanley's 'semiconductor grim reaper' downgrades Samchonix to 309,000 won and 1.6 million won

Morgan Stanley, a global investment bank (IB), raised its performance forecast for Samsung Electronics [005930] and SK Hynix [000660] for next year, but significantly lowered its target stock price due to the possibility of worsening profitability due to expansion of semiconductor supply after 2028.

Although the memory semiconductor boom continues due to increased investment in artificial intelligence (AI), it is analyzed that it may be difficult to maintain the current high profitability for a long period of time as new production facilities begin operating from the end of 2027.

According to the financial investment industry on the 10th, Morgan Stanley lowered SK Hynix's target stock price by 38% from 2.6 million won to 1.6 million won in a report titled 'Memory Semiconductors - Key Issues After the U.S. Midterm Elections' published the previous day.

Samsung Electronics' target stock price was also lowered by 19% from 381,000 won to 309,000 won, and the target price for Samsung Electronics' preferred stock was lowered from 304,800 won to 247,200 won.

Shawn Kim, a researcher at Morgan Stanley who wrote this report, earned the nickname 'semiconductor grim reaper' in Korea after issuing a series of reports warning of the deterioration of the semiconductor industry in the past.

He warned of a worsening situation in the semiconductor industry in a report titled ‘Memory, Winter is Coming’ in August 2021. In September 2024, a report titled 'Winter is Coming' raised the possibility of an oversupply of memory semiconductors and drew the market's attention by lowering the target stock prices of SK Hynix and Samsung Electronics by 54% and 28%, respectively.

What Morgan Stanley focused on in this report is the sustainability of the memory semiconductor industry after 2028.

Researcher Sean Kim said, “The most important debate in the current memory semiconductor market is whether it is possible to avoid a ‘performance cliff’ in 2028.” He added, “Concerns are growing about whether growth can be achieved and maintained after 2028 rather than next year’s performance itself.”

In particular, it was judged that while the supply of semiconductors will increase as new production facilities begin operating from the end of 2027, the pace of AI data center construction is likely to slow.

Morgan Stanley predicted that a project worth about 5 gigawatts (GW), which was scheduled to be operational in 2028, will be postponed to 2029, reflecting the possibility that some data center construction plans will be delayed after the U.S. midterm elections.

Accordingly, the growth rate of new data center facilities around the world is expected to decrease from the previous estimate of about 21% to 9% in 2028 and recover to 20% in 2029.

The explanation is that if the supply of memory semiconductors increases while data center construction is delayed, the current supply shortage may be alleviated and downward pressure may be placed on semiconductor prices.

The expansion of production by Chinese semiconductor companies and intensifying competition in the high-bandwidth memory (HBM) market were also cited as factors that will put pressure on long-term profitability.

Accordingly, Morgan Stanley lowered SK Hynix's HBM operating profit rate forecast for 2027-2028 from 78-80% to about 70%, and Samsung Electronics' HBM operating profit rate forecast was also lowered from about 80% to 65-72%.

However, the company maintained a positive outlook on short-term performance.

Morgan Stanley presented Samsung Electronics' operating profit forecast for next year at approximately KRW 688 trillion, a 9% increase from previous estimates. SK Hynix's operating profit forecast for next year was also adjusted up by 13% to approximately 468 trillion won.

The 2028 operating profit forecast was also raised by 10% for Samsung Electronics and 1% for SK Hynix.

Nevertheless, the reason the target stock price was lowered is because the profit margin of memory semiconductors is expected to return to the past average level after 2029.

Accordingly, Morgan Stanley lowered SK Hynix's overall operating profit margin forecast for 2029 to 2035 from the previous average of 53% to 28%.

Morgan Stanley explained, "Stock prices move ahead of the company's fundamentals and reflect the risk that performance forecasts will be lowered over the next few years as supply catches up with demand and the pace of AI infrastructure construction slows."

In this report, the investment opinion for both companies was maintained at 'Overweight'.

In particular, the top stock in the semiconductor industry changed from Samsung Electro-Mechanics to Samsung Electronics.

Morgan Stanley evaluated that Samsung Electronics is relatively advantageous in dealing with the industry slowdown in that it is recovering its share in the HBM market and can generate profits in businesses other than semiconductors.

According to the forecast by market research firm Trend Force cited in the report, Samsung Electronics' HBM market share next year is expected to increase to about 39%, ahead of SK Hynix (37%).

Morgan Stanley said, “Although AI is bringing structural changes to the memory semiconductor industry, the memory industry still has cyclical characteristics,” and added, “In the latter half of the industry, technology-leading companies with large scale and strong financial structures are relatively advantageous.”