Morgan Stanley has changed its tone on semiconductor stocks, saying the recent pullback in memory chip names has created a strong entry point after warning earlier this month that momentum in the group was fading.
In a July 20 note to clients, analyst Joseph Moore said continued expansion in AI data center investment could keep memory in short supply through 2027 and 2028, making the current decline a chance to build positions on weakness.
Data centers remain the main driver of the cycle
Moore said this memory cycle is being driven entirely by data centers. In his view, signals coming from consumer electronics, PCs, and smartphones amount to noise that shows up at different times in spot pricing and inventory levels.
He said that should not be interpreted as evidence that the memory cycle is weakening.
Nvidia and Broadcom still rank ahead on risk-reward
Even while calling the pullback a buying opportunity, Moore did not put memory at the top of Morgan Stanley’s preferred list. He said the firm still sees Nvidia (NVDA) and Broadcom (AVGO) as the better ideas on a risk-reward basis.
At the same time, he said memory stocks are closing the gap quickly. Buying interest has become concentrated in memory names, he wrote, and given the unusual nature of this cycle as well as the recent selloff, those shares now offer a solid point of entry even if Nvidia and Broadcom remain the firm’s highest-conviction picks.
Shortage could last into 2028
Moore also said the shortage may extend into 2028, arguing that memory supply is still not sufficient relative to AI demand.
On concerns that long-term contracts and capacity expansion could restrain prices, he said long-term procurement agreements would compress the amplitude of the cycle, but that effect would be positive for stock prices over a longer horizon.
From warning to buy-the-dip language
The latest note marks a clear contrast with Morgan Stanley’s stance earlier this month. At that time, the bank warned that the rally in chip stocks was losing momentum. It cited Meta’s sale of excess AI computing capacity to outside parties as a sign that growth in AI investment could slow, and recommended reducing exposure to semiconductors.
In the new report, however, Morgan Stanley said the latest selling pressure had created a strong buying opportunity because there were still no signs that the chip shortage trade was easing.
SanDisk and Micron have fallen from recent highs
Among the names highlighted in the current pullback, Sandisk and Micron had dropped about 39% and 27%, respectively, from record highs reached at the end of last month.
Even after that correction, the two stocks were still up about 500% and 200% this year, respectively.