Morgan Stanley analysts say they are expecting the computer memory sector to hit new highs over the rest of 2024, despite investors “generally” not being comfortable buying such stocks at such lofty prices. “At mid-cycle we see many new highs being made over the rest of the year. After our recent checks, we see no major issues for memory but a correction may be needed for investors to take advantage of this,” the bank’s analysts, led by Shawn Kim, wrote in a June 25 research note. “Buying new highs has a better win ratio then attempting to buy at lows … Stock prices are the present value of future earnings and we see better-than expected industry growth and company fundamentals that should be rewarded by investors.” Aside from their attractive valuations, memory stocks are expected to see a lift in demand on the back of stronger usage of artificial intelligence-powered applications, infrastructure, tools and services, the analysts added. They predict better-than-expected industry growth and see “company fundamentals that should be rewarded by investors,” also noting certain supply bottlenecks and constant strength in memory prices. There are several stocks from the sector that the bank likes. Top pick and overweight-rated stocks SK Hynix , the South Korean chipmaker, is Morgan Stanley’s “top pick.” “We think SK Hynix is clearly in a league of its own within the HBM [high-bandwidth memory] category, and believe it will sustain the best idiosyncratic growth/returns and hold the majority of HBM market share in 2025,” the analysts explained. Also on the list is Samsung Electronics : despite the company having a muted first half, the analysts noted. “We believe Samsung’s share price will likely experience a tactical catch-up rally with NVDA [ Nvidia ] HBM3e 12-stack qualification as the key catalyst to re-rate. HBM offers large multi-year incremental tangible growth, and we think investors are recognizing this longer-term potential for sales and earnings growth,” they wrote. Morgan Stanley has an overweight rating for both stocks, with a target of 300,000 South Korean won ($216) for SK Hynix — giving it around 26.6% potential upside from its June 26 close — and 105,000 South Korean won for Samsung, or around 22.6% upside. Both stocks trade on the Korean Exchange and in the iShares MSCI South Korea ETF (SK Hynix has a 10.7% weight while Samsung Electronics has a 22.2% weight). The bank also likes Western Digital , given its “very strong” first-quarter results compared with its peers. “Looking forward, the company expects a surge in high-density SSDs [solid state drives] for AI markets; we think that ramp will materially improve in 2H,” the analysts added. Morgan Stanley is overweight on the stock and gives it a price target of $86, or nearly 12% upside. — CNBC’s Michael Bloom contributed to this report.
