Morgan Stanley Initiates Coverage on INNOSCIENCE (02577) with HK$95 Target Price, Benefiting from Multiple Long-Term Growth Drivers

Stock News
2025/10/14

Morgan Stanley published a research report initiating coverage on INNOSCIENCE (02577) with an Equal Weight (EW) rating and a target price of HK$95. Since announcing its partnership with NVIDIA in late July 2025, INNOSCIENCE's stock price has nearly doubled (compared to the Hang Seng Index's 8% gain over the same period). The firm believes that growth opportunities from NVIDIA's AI data centers are largely reflected in the current stock price, but verification and order allocation remain uncertain. The firm believes the company is positioned to benefit from multiple long-term growth drivers, including AI data centers, humanoid robots, and electric vehicles. Industry competition remains intense, and current valuations largely reflect high market expectations.

Gallium Nitride: Niche but with Tremendous Growth Potential

The gallium nitride market is a segment within the semiconductor industry. According to World Semiconductor Trade Statistics data, the total addressable market for gallium nitride in 2024 was $346 million, compared to $631 billion for the entire semiconductor industry. Driven by multiple factors, the firm forecasts the gallium nitride market will achieve a 49% compound annual growth rate from 2024-29. These driving factors include 800V high-voltage DC power conversion in data centers, increasing numbers of servo motors in growing humanoid robot adoption, expanding gallium nitride applications in electric vehicles (onboard chargers, LiDAR, DC-DC converters), and fast-charging demands in consumer electronics.

INNOSCIENCE Positioned to Expand Market Share in Rapidly Growing Gallium Nitride Market

Leveraging its vertically integrated device manufacturer (IDM) business model, INNOSCIENCE possesses superior technology roadmap synchronization, capacity stability, and cost advantages from large-scale production. The firm expects INNOSCIENCE's growth rate to exceed the overall market growth rate. Additionally, INNOSCIENCE's strategic partnerships with leading downstream customers demonstrate its technological leadership and indicate strong growth potential, such as AI data center collaboration with NVIDIA, electric vehicle partnerships with Hesai Technology and RoboSense, and humanoid robot collaboration with Zhiyuan Robotics. Furthermore, the strategic partnership with STMicroelectronics helps expand overseas business.

Long-term Growth Potential, but Competition and Overcapacity May Persist

Besides INNOSCIENCE, other manufacturers including Infineon are also expanding capacity. According to the firm's supply-demand model, global capacity is projected to grow from 100,000 wafers/month in 2024 to 345,000 wafers/month in 2029 (based on 6-inch wafers). Overall gallium nitride capacity utilization may improve but will remain below 60% over the next five years, meaning pricing and profitability in the gallium nitride market will face pressure. The firm expects INNOSCIENCE's gross margins to improve modestly in 2026/27.

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