Morgan Stanley keeps overweight SK Hynix Samsung

Morgan Stanley has kept overweight ratings on SK Hynix and Samsung Electronics while warning that the memory-chip boom could enter a more fragile phase in the fourth quarter of 2026, when price increases are expected to slow and new production capacity begins reaching customers.

In an Asia technology note dated Aug. 6, the bank retained target prices of 2.60 million won for SK Hynix and 381,000 won for Samsung Electronics common shares. Using the reference prices in the report, the targets represented potential gains of roughly 74% and 65%, respectively.

The combination captures Morgan Stanley’s view of the sector: AI infrastructure demand remains strong enough to support Korean memory leaders, but the extraordinary pricing momentum that lifted earnings earlier in 2026 is unlikely to continue at the same pace.

Cloud spending outlook lifts demand assumptions

Morgan Stanley raised its forecast for cloud capital-expenditure growth in 2027 to 29%, from 14% one month earlier. The revision reflected ongoing shortages of AI computing capacity and the absence of a clear retrenchment in infrastructure spending by major cloud companies.

The bank said demand for AI-related hardware continues to exceed available supply at several large cloud platforms. That imbalance has supported spending on servers, accelerators and high-bandwidth memory, or HBM, the advanced DRAM used alongside AI processors.

For SK Hynix and Samsung, the higher cloud-spending estimate provides support for longer-term demand forecasts, especially in premium memory products. Both companies have sought to secure demand through multiyear supply agreements with large data-center customers, a structure that gives manufacturers more visibility than traditional short-term memory sales.

Morgan Stanley said SK Hynix had completed discussions with about 10 customers on long-term agreements, generally lasting around five years. Contract terms differ by customer and product, while pricing mechanisms can move with market conditions.

Samsung, according to the note, aims to put 60% to 70% of its output under rolling five-year agreements. The company had reached agreements with five large global data-center customers and was in final-stage negotiations with another five, Morgan Stanley said. Some of those arrangements include customer prepayments and price floors for mainstream memory products.

Those contracts could reduce the volume exposed to abrupt spot-market changes, though they cannot remove the effects of a weaker demand environment or a substantial rise in industry supply.

Memory-price increases are forecast to cool sharply

Morgan Stanley expects the sector to move into a later stage of its cycle during the fourth quarter, with contract-price increases narrowing substantially from the gains recorded in the first half of the year.

Citing TrendForce data, the report said DRAM contract prices rose 96% quarter-on-quarter in the first quarter of 2026, while NAND prices increased 88%. The bank expected increases of 61% for DRAM and 58% for NAND in the second quarter.

The projected pace then drops markedly: DRAM and NAND contract prices were expected to rise 16% and 13%, respectively, in the third quarter, followed by gains of 6% and 3% in the fourth quarter.

Early channel checks also suggested a cooling trend. Morgan Stanley cited an approximately 15% quarter-on-quarter increase in early third-quarter DRAM contract pricing, below its previous expectation of 20%. NAND contract prices were indicated to be up around 20%.

PC DRAM offers a clearer example of the deceleration. Morgan Stanley forecast third-quarter contract prices to rise 15% to 20% from the prior quarter, compared with increases of 45% to 50% in the second quarter.

Memory manufacturers can remain highly profitable even as prices keep rising more slowly. Yet their earnings are particularly sensitive to the rate of price change: when rapid sequential increases fade, the operating leverage that drove margins higher begins to weaken. The report expects channel inventories to rise and added capacity to reach the market as 2026 progresses, adding pressure to that transition.

Earnings changes reflect different company exposures

Morgan Stanley raised its 2026 earnings-per-share estimate for SK Hynix by 13%, mainly because of a one-off investment gain of 63.27 trillion won recorded in the second quarter. At the same time, it reduced its 2026 operating-profit forecast for the company by 7%, reflecting the expectation of less favorable memory pricing later in the year.

The note said SK Hynix reported second-quarter 2026 revenue of 79.3187 trillion won and operating profit of 60.5426 trillion won, equivalent to a 76% operating margin. Morgan Stanley separately estimated DRAM gross margin near 90%, a measure it said was unusually high by historical standards. Gross margin and company-wide operating margin measure different parts of profitability and are not directly comparable.

For Samsung, Morgan Stanley cut its 2026 EPS estimate by 10%, citing softer performance in consumer-facing businesses, including smartphones. Samsung’s broader business mix makes its earnings less dependent on memory than SK Hynix’s, but it also leaves the company exposed to weaker consumer-device demand.

Changes to the bank’s 2027 and 2028 assumptions were limited. Its revised forecasts implied roughly 25% year-on-year EPS growth for SK Hynix in 2027 and about 49% for Samsung, within the 25% to 50% range referenced in the analysis.

New capacity remains the central risk to prices

The report’s most substantial risk to its positive share-price targets is supply. High profitability encourages existing producers to expand and can create openings for newer competitors, particularly if demand growth moderates before planned capacity is absorbed.

Morgan Stanley expects major producers to add capacity through 2027 and 2028. It also identified Chinese expansion as a longer-term consideration, saying ChangXin Memory Technologies could begin supplying HBM within China as early as 2027 alongside broader production increases from domestic manufacturers.

A large supply increase would not necessarily undermine the market while cloud operators continue expanding AI infrastructure at the rates Morgan Stanley now anticipates. But the balance could change quickly if cloud capital spending slows while new fabs and production lines ramp up.

For the cryptocurrency sector, the report offers a narrower signal than claims of an immediate hardware-cost shock. Memory prices can affect the cost of servers used by infrastructure providers, node operators and data-heavy blockchain services, but the note does not forecast a specific increase in equipment prices for blockchain operators or token holders. Its evidence instead points to a memory market where AI demand remains intense, while the pricing cycle becomes progressively less forgiving for producers and customers through 2027.