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The tech theme has been reigning supreme this year and one segment in particular stands out to Morgan Stanley: the memory sector. Calling it “the gift that keeps on giving,” the investment bank notes that the sector’s “pricing power is now among the best in tech, and still in early recovery stage.” “We expect a significant margin recovery with supply discipline maintained,” Morgan Stanley’s analysts led by Shawn Kim wrote in a Nov. 2 note. Prices of memory chips were on the decline earlier this year amid sluggish demand for smartphones. This has since reversed, spurred by rising prices for a number of different types of memory including DRAM — or dynamic random access memory, a type of semiconductor memory needed for data processing — as well as NAND, or NOT AND — a flash memory storage technology that can retain data without power. The Morgan Stanley analysts have penciled in a 14% price hike for NAND and 10% increase for DRAM this quarter. Aside from improving inventory levels, they see demand edging up — especially among smartphone producers — as customers make “strategic purchases” of DRAM and NAND to take advantage of lower pricing. Demand is getting a boost by developments in HBM, or high-bandwidth memory, a type of memory technology containing DRAM modules. Even so, Morgan Stanley says that the recovery in the memory sector is just starting and is still “front-running a lot of good things that are supposed to happen much later.” Top pick and overweight-rated stocks The optimistic outlook for the memory sector spells good news for a raft of stocks in Asia. “On the earnings front, that is clearly playing out for AI/HBM driven stocks and we now expect NAND upside to drive significant margin expansion and a further leg of revisions,” Morgan Stanley’s analysts said, naming South Korean chipmaker SK Hynix as their “top pick.” The company is the “sole supplier” of high-bandwidth memory for U.S. chipmaker Nvidia ‘s H100 chips, they explained, adding: “bottom line, Hynix remains the most valuable company in HBM for most customers on performance, quality and execution.” The analysts also like Samsung Electronics , calling it — and SK Hynix — “key beneficiaries of HBM demand from the AI trend.” Morgan Stanley is overweight-rated on both stocks with a target of 210,000 Korean won ($160.29) for SK Hynix — giving it around 61% potential upside from its Nov. 7 close — and 95,000 Korean won for Samsung, or around 34% upside. The bank also likes Taiwanese player Phison Electronics, calling it a “preferred play” benefitting from low-cost raw NAND inventory. Morgan Stanley is overweight on the stock and gives it a price target of 500 New Taiwanese dollars ($15.52), or around 1% upside. — CNBC’s Michael Bloom contributed to this report
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