Did the market "misfire"? Morgan Stanley: It's not NVIDIA that cut orders for CoWoS, but those "losers who lost market share."

Overnight, NVIDIA's stock price suffered a sharp decline, briefly hitting the lowest closing price since September 2024. Market rumors suggest that major customers, including NVIDIA, have significantly reduced their CoWoS orders from TSMC, which is considered the "culprit" behind the stock price drop. Morgan Stanley, however, believes that it is not NVIDIA cutting CoWoS orders, but rather those "losers" who are losing market share.

On March 3rd, Morgan Stanley analysts Charlie Chan, Daniel Yen, and Ray Wu released a research report stating that long-term AI demand will remain unchanged, and CoWoS orders will become reasonable, with NVIDIA continuing to capture market share from AMD and most ASIC manufacturers in 2025.

"Losers" Revealed, NVIDIA Steadily Holds Its Ground

Morgan Stanley bluntly pointed out in the report that "everyone wants to win in the AI semiconductor field, but there will always be losers."

The report indicated that customers canceled CoWoS orders because their previous expectations were overly optimistic, while the reality is that most of them will "lose market share to NVIDIA" in 2025 and will not achieve their optimistic goals. In other words, it is not NVIDIA that is "cutting orders" for CoWoS:

“Data shows that AMD, Google TPU, and Intel Habana are all lowering their expectations. Among them, AWS Trainium has strong demand, but the 3nm Trainium3 will not begin production until the end of 2025, leading to some repeated CoWoS bookings being released.”

Facing the rumors of "order cuts," NVIDIA seems unfazed. The research report pointed out that NVIDIA has not reduced orders for front-end wafers (such as 4nm wafers).

It is estimated that NVIDIA's CoWoS demand in 2025 will be approximately 450,000 wafers, including 390,000 CoWoS-L (mainly for B300), 50,000 CoWoS-S (mainly for H20), and 10,000 CoWoS-R (for AI PCs and automobiles).

Although Morgan Stanley slightly lowered its forecast for NVIDIA's CoWoS demand (from 465k to 450k), this is mainly due to the transition of products to GB300 server racks.

No Need for a "Great Leap Forward" in CoWoS Capacity, Long-term AI Demand Remains Strong

Despite high calls for the expansion of CoWoS capacity, Morgan Stanley believes that TSMC does not need to expand capacity in a "Great Leap Forward" manner.

Morgan Stanley had previously estimated that TSMC's CoWoS capacity would reach 80kwpm by the end of 2025, but it now appears that the supply chain is more likely to build up to only 75kwpm. However, Morgan Stanley maintains its expectation of expanding to 100kwpm by 2026.

Morgan Stanley expects that the average CoWoS capacity in 2026 (approximately 87.5k) will still achieve over 50% year-on-year growth compared to 2025 (average approximately 53.5k), which remains a strong growth trendIn addition, despite the adjustment of CoWoS orders in the short term, Morgan Stanley remains confident in the long-term demand for AI.

Analysis from Morgan Stanley's U.S. TMT team shows that the return on investment for generative AI is expected to turn positive starting in 2025, and by 2028, generative AI software/internet is expected to generate $1.1 trillion in revenue opportunities. NVIDIA's recent earnings call also confirmed that "long-term thinking" has led to incremental demand