Surging demand, depleted inventory, and storage have become a "seller's market." Morgan Stanley: Investors should not exit due to "fear of heights."
Morgan Stanley stated that the AI wave is driving storage chips into a strong upward cycle. The surge in demand and supply lag have caused DRAM inventory to drop below two weeks, and the market has shifted to a "seller's market," with manufacturers' quotes rising by as much as 25%. This round of price increases is far from peaking, with prices having the potential to double, and emphasized that "staying in the market is more important than timing," urging investors not to miss out on subsequent trends due to "fear of heights."
The demand wave triggered by AI is reshaping the global storage market.
According to news from the Chasing Wind Trading Desk, on October 19, Morgan Stanley pointed out in its latest report that the storage industry is in the early to mid-stage of a strong upward cycle. Although related stocks have reached new highs, the best gains may still be ahead, and investors should not exit prematurely due to "fear of heights."
Supply Shortage Intensifies, Shifting to a Seller's Market
Through channel surveys, Morgan Stanley found that driven by a surge in orders from U.S. cloud service customers, storage chip manufacturers have reported price increases of up to 25% for DRAM and NAND flash memory for the fourth quarter of 2025. This indicates that the market is rapidly shifting towards a seller's tilt, with strong price momentum.
The report emphasizes that the current supply-demand imbalance in traditional memory is more severe than expected. DRAM manufacturers' inventories have plummeted to below two weeks, and NAND flash inventories have also fallen below long-term average levels.
The firm expects that it will take 4 to 6 quarters for new capacity to catch up with demand, and supply lag issues will persist. This environment typically encourages customers to build buffer inventories, further solidifying the seller's market structure.
"We believe that the current uptrend is still in the early to mid-stage... A return to historical peak prices means there is potential for a doubling from the current position. We see no evidence that seasonal demand weakness will affect storage pricing in the first quarter of 2026... These situations typically prompt customers to build buffer inventories, reinforcing the seller's market."
How Much Higher Can Prices Go? Morgan Stanley Says We're Far from the Peak
Morgan Stanley believes that current prices still have considerable room for upward movement before reaching historical peaks.
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NAND Flash: Given the strong demand driven by AI, its price is expected to double from current levels, returning to the peak of approximately $0.13/GB in the second quarter of 2022.
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DRAM Memory: The price of server memory modules peaked at $10/GB in the first quarter of 2018, while the current negotiation price is about $5.4/GB. The report suggests that considering the potential market size (TAM) for AI memory is expected to exceed that of the traditional general DRAM market by 2027, the price peak in this cycle has every reason to surpass previous highs.
Overcoming "Fear of Heights," Profit Momentum is Key
Addressing the widespread "fear of heights" mentality among investors, Morgan Stanley candidly pointed out that this is a typical cognitive bias.
"New highs often lead to even higher peaks, and this time there is ample profit to support it; being in the market is more important than trying to time the market. We believe that the best days of this uptrend may still be ahead." The report emphasizes that the core driver of stock prices is earnings momentum, rather than merely AI narratives. Taking SK Hynix and Samsung Electronics as examples, over the past 12 months, SK Hynix's stock price has risen by about 140%, driven by a 62% upward revision in market earnings expectations; in contrast, Samsung Electronics' stock price has increased by about 64%, with earnings expectations only revised up by 14%. This difference clearly indicates that "stronger earnings revisions lead to stronger stock price returns."
Analysts Shawn Kim and Duan Liu wrote in the report that it is nearly impossible to accurately time the market, as historical cycles show that "staying in the market during an uptrend is more important than precise timing."
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