Morgan Stanley states that the current supercycle in the memory industry is structural, with its strength and duration surpassing historical precedents. The right strategy is to embrace leading memory players with pricing power while recognizing the severe challenges faced by downstream consumer electronics sectors.

On November 12, Morgan Stanley sent a clear signal in its latest research report: the AI-driven memory supercycle is not only real but may also exceed market expectations in intensity and longevity.

The report highlights that the core driver of memory demand has shifted from price-sensitive traditional customers to price-insensitive AI data centers and cloud service providers. AI inference workloads are becoming the primary engine for exponential growth in general-purpose memory demand.

Channel pricing reflects unprecedented strength. In just the past two weeks, server DRAM contract prices for Q4 2025 have surged nearly 70%, while NAND contract prices have risen 20-30%.

Morgan Stanley notes that historically, memory uptrend cycles typically last 4-6 quarters. Attempting to time the market often results in missing most of the gains. In this fundamentally driven bull market, "holding" is the best strategy for outperformance.

The report favors memory manufacturers, expecting SK Hynix and Samsung to benefit from strong pricing power, leading to margin expansion and profit surges. Conversely, downstream PC, smartphone, and consumer electronics supply chains will face severe cost pressures and profit squeezes, warranting caution.

**AI Reshapes Demand: A Cycle Unlike Any Other** Morgan Stanley states that we are witnessing an unprecedented market structure.

Unlike past cycles driven by PCs and smartphones, this memory demand surge is fueled by an "arms race" among AI data centers and cloud service providers. These customers are far less price-sensitive than traditional consumers, prioritizing access to sufficient computing infrastructure for large language models (LLMs) and AI applications.

The report emphasizes that inference workloads are now the primary driver of general-purpose memory demand, exhibiting "legitimate exponential growth trends."

Even if LLM spending consolidates in the future, sustained demand from AI applications will support the memory market's strength. Additionally, while enthusiasm for HBM has cooled, its production continues to structurally constrain capacity for traditional memory, exacerbating supply tightness.

Morgan Stanley stresses that this cycle cannot be viewed through a historical lens—it is a fundamentally new landscape driven by technological revolution.

**Unprecedented Pricing: Channel Prices "Out of Control"** Channel survey results are startling. In just two weeks, memory pricing dynamics have intensified dramatically:

- **DRAM Price Surge**: Server DRAM contract prices for Q4 2025 have jumped nearly 70%, far exceeding Morgan Stanley’s earlier 30% forecast. Customers, fearing further price hikes and shortages, have little choice but to accept. DDR4 prices also rose 50% due to strong demand from U.S. data center network switches. - **Spot Market Explosion**: DDR5 (16Gb) spot prices have soared 336% from $7.50 in September to $20.90 today. DRAM and NAND scarcity has reached extreme levels for secondary customers, distributors, and module makers. - **NAND Shortages**: As a critical component for AI computing and video storage, NAND supply remains tight. 3D NAND (TLC & QLC) prices are expected to rise 65-70% QoQ in Q4. Samsung’s transition to 321-layer V8-NAND will limit H1 2025 output, capping annual shipment growth at 10%. - **No Alternatives**: HDD lead times now extend beyond two years, with visibility into 2027, yet major manufacturers are not expanding capacity. This imbalance is spilling demand into eSSDs, underscoring the massive supply gap across the storage market.

**Ditch Market Timing: Investors Should "Hold," Not "Trade"** The report warns that in volatile markets, human "negativity bias" often triggers fear when stocks hit all-time highs, leading to premature exits.

Morgan Stanley clarifies this is a mistake. Memory stocks are hitting new highs due to AI, but this doesn’t signal the end of the rally. The report offers clear advice:

Time in the market matters far more than timing the market. Memory cycles are inherently volatile, with rebounds and pullbacks. Investors must endure this discomfort and stay invested—no one can consistently and accurately predict market turns.

As the report quotes: "Doing nothing is often the best strategy."

Morgan Stanley adds that earnings, not valuations or historical patterns, ultimately drive stock prices. As long as market skepticism persists, it fuels further upside.

**Winners and Losers: Favor Memory Makers, Beware Downstream Squeeze** The memory-driven cost tsunami will sharply divide winners and losers.

- **Winners**: Memory manufacturers. Companies like SK Hynix and Samsung, with pricing power, will directly benefit from rising prices, delivering massive profit growth. Earnings estimate revisions have been among the strongest drivers of stock performance this year. - **Losers**: Memory consumers. PC, non-premium smartphone, and consumer electronics supply chains face severe profit compression. These sectors struggle to fully pass on sharp memory cost increases to consumers, risking demand destruction and shipment declines in 2026-2027.

Morgan Stanley advises caution in these areas—particularly the PC industry—and has recently downgraded several key players in the space.