Morgan Stanley has raised its target price for Samsung Electro-Mechanics to 2.56 million won from 920,000 won, pointing to a structural surge in demand for multilayer ceramic capacitors (MLCCs) driven by artificial intelligence servers.
The bank said AI servers require 10 to 15 times more MLCCs than traditional units, marking a shift in the industry from cyclical swings to sustained, structural growth.
Ai servers reshape MLCC demand
An AI server typically uses around 440,000 MLCCs, compared with about 30,000 in a conventional server. This jump in usage, combined with tighter technical requirements, is expected to push average selling prices higher.
Morgan Stanley forecasts the MLCC segment could contribute 15% of Samsung Electro-Mechanics’ revenue by 2026 and exceed 50% by 2030, reflecting the central role of these components in AI infrastructure.
Supply constraints drive price outlook
The report emphasized that supply limitations are structural rather than temporary. High-end MLCC production lines are already running at full capacity, and new facilities take roughly two years to become operational.
Inventory trends are beginning to influence contract pricing, with distributors stockpiling components. Prices are projected to rise by about 30% in the second half of 2026 and increase another 30% to 50% in 2027.
Market data from the second quarter of 2026 supports this outlook. The book-to-bill ratio for major MLCC producers, including Samsung Electro-Mechanics and Murata, has remained above 1.0, indicating demand continues to outpace supply. Some high-capacity MLCCs for AI servers have already seen spot prices climb 50% to 60%.
Financial performance and margin expansion
Samsung Electro-Mechanics reported first-quarter 2026 revenue of 3.2 trillion won, above expectations of 3.1 trillion won. Earnings per share for fiscal 2027 are now estimated at 55,477 won, a 71% increase from previous forecasts.
Operating margins are expected to rise from 15.7% in 2025 to 25.9% by 2028, supported by stronger pricing power across its MLCC portfolio.
Return on equity is projected to climb from 7.5% in 2025 to 32.2% by 2028, while dividend payout ratios could increase from 5% to 20%. At a current valuation of 1.4 times price-to-book, below its historical average of 1.7 times, the stock may see further revaluation as profitability improves.
Expansion across AI component supply chain
Beyond MLCCs, the company is expanding its exposure to AI hardware. Its ABF substrate division is operating at full capacity due to strong demand from AI chip clients. The silicon capacitor business has secured contracts worth 1.3 billion dollars, with revenue expected to materialize from 2027.
The firm has also begun trial production of glass substrates, signaling further diversification into next-generation AI components.
Industry-wide repricing underway
The broader market is undergoing a repricing of foundational electronic components as AI infrastructure build-out accelerates globally. Rising costs for raw materials such as silver and copper have added pressure, lifting prices for standard passive components by 15% to 20%.
Competitors are also facing tight capacity. Murata, for example, is operating at 90% to 95% utilization and plans a 10% capacity increase in fiscal 2027, a move seen as insufficient to close the supply gap.
This prolonged imbalance between supply and demand is reinforcing pricing power across the sector and shifting value toward producers of specialized components.
Risks and catalysts ahead
Morgan Stanley highlighted several factors that could influence performance:
- Upside could come from prolonged MLCC shortages, stronger smartphone demand, and consumer stimulus in China
- Risks include weaker flagship smartphone production, softer demand in China, and broader global consumption slowdowns
Near-term catalysts include rising contract prices, sustained high production utilization, and increased MLCC integration in next-generation AI platforms.
While short-term volatility in the South Korean equity market has affected technology shares, the report suggests this reflects broader valuation concerns rather than any change in the underlying supply-demand dynamics. The long-term trajectory remains tied to continued expansion in AI chip demand and the pace of capacity additions across the supply chain.
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