Morgan Stanley: Despite recent sell-offs, memory chip stocks are still expected to rebound

Investing.com – Morgan Stanley defends storage chip stocks after recent market sell-off, asserting that despite investor concerns over capital expenditure and demand sustainability, supply constraints will continue to support the sector.

The investment bank reiterated its overweight ratings on Micron Technology and SanDisk, viewing the current weakness as a healthy correction rather than a fundamental shift in market dynamics.

Morgan Stanley analysts noted that supply of storage chips remains a limiting factor for the development of artificial intelligence infrastructure. The firm stated that shortages are becoming more severe, with customers expecting ongoing supply constraints and prepaying for large-volume agreements.

While flat spot prices, rising capital expenditures, and increased productivity typically signal a market top under normal conditions, Morgan Stanley said that the current environment differs significantly from historical patterns. The bank noted that storage chips are becoming an increasingly critical bottleneck in AI development and CPU deployment.

The analysts acknowledged that second-order deceleration is inevitable but emphasized that duration is more important at the current valuation level of four times price-to-earnings ratio. The firm indicated that key indicators continue to point in a positive direction.

Morgan Stanley addressed concerns about KV cache optimization, which has been pressuring storage chip stocks, but characterized it as a routine productivity improvement rather than a structural demand threat.

The bank stated that recent sell-offs reflect market pricing of ongoing concerns but maintained that the potential strength of the storage chip sector will prove more sustainable than current market sentiment suggests.

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