Morgan Stanley calls the bottom for semiconductors: the sell-off is overdone, risk-reward has significantly improved! Top picks are Nvidia (NVDA.US) and Broadcom (AVGO.US)
Morgan Stanley released a research report suggesting that after the recent market correction, investors are advised to allocate assets to the semiconductor sector. The bank believes that the recent downturn appears to be "overdone" and that the risk-reward ratio for its covered targets has "significantly improved."
According to information from Zhihui Finance APP, Morgan Stanley released a research report stating that, following the recent market correction, investors are advised to allocate to semiconductor sector-related assets. The bank believes this downturn appears to be “overdone,” and the risk-reward ratio of its covered assets has “significantly improved.”
The bank acknowledges that multiple recent events have indeed brought some risks, but industry momentum remains “exceptionally robust,” with well-funded leading companies set to continue ramping up investments for years, and demand showing sustainability.
“Our greatest risk, in fact, is panic sentiment itself,” analysts wrote in the report, adding that even new cloud providers under pressure from high interest rates and operational challenges are still unable to secure enough computing power resources.
Regarding market concerns that land, electricity, and plant/data center construction (LPS) bottlenecks might constrain data center expansion, Morgan Stanley refuted the pessimistic views.
After communicating with procurement sides in the industry chain, analysts stated: “As things stand, LPS will not become the most significant limiting factor by 2027; the real core issue is that even with compliant and available data center space, there are simply not enough chips to fill it.”
The report also mentions that original computing power deployment plans in places like Ohio and Texas are under pressure to slow down, but analysts pointed out that the industry is accelerating its search for LPS alternatives either outside the US, or in states with more favorable policies.
Morgan Stanley provided a clear ranking of preferred semiconductor sub-sectors, with the GPU/XPU computing power track coming out on top.
Analysts said: “Computing power is our top choice among sub-sectors, with demand remaining highly robust; the fabless model can also cushion margin pressures during demand downturns, and valuation levels are attractive.” The report strongly recommends NVIDIA (NVDA.US) and Broadcom (AVGO.US), with both companies trading at around 9 times 2028 P/E ratios.
The memory chip sub-sector ranks second. Morgan Stanley believes that, after continued compression of valuations in the memory segment, the upside is now extremely attractive, specifically highlighting the strong investment value of SanDisk (SNDK.US) and Micron (MU.US) at current price levels.
For the microprocessor sector, Morgan Stanley’s view is notably more cautious compared to mainstream market consensus.
Analysts indicated they remain on the sidelines regarding Intel (INTC.US), though Intel stands to benefit most in this round of specification improvement.
Although CPU demand remains strong and supply persistently tight, the bank judges that the CPU shortage cycle is shorter than that of memory chips and also carries higher valuations. Therefore, within the forced ranking framework, the CPU track as a whole is ranked at the bottom; even so, within the CPU names, the bank favors AMD (AMD.US) over Intel.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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