Greater China memory chip stocks are poised for an upside surprise, as Morgan Stanley has upgraded its rating and raised its price target.

Overview

Morgan Stanley released a report noting that the semiconductor memory sector in Greater China is poised for an upward surprise. With major suppliers such as Micron and SK Hynix scaling back DDR4 supply amid robust demand from enterprise servers and SSDs, the DDR4 supply‑demand gap is expected to widen from the previously forecast 14% to 19–20% in the second half of 2026. Furthermore, the adoption of SLC NAND in data centers and the SiCap (silicon capacitor) business are emerging as new catalysts for re-rating. In light of these developments, the firm has upgraded its rating on Winbond and Nanya Tech from “Equal Weight” to “Overweight,” while significantly raising earnings forecasts and target prices for three core companies, including GigaDevice.

Core views

Reversal in supply‑demand dynamics drives DDR4 price increases: The research report argues that earlier forecasts of a supply‑demand gap in the second half of 2026 were overly conservative. The latest modeling indicates that the DDR4 supply‑demand gap will widen to 19–20% in H2 2026 (compared with the previous estimate of 14%), and remain elevated at 18–20% through 2027–2028. This shift is primarily attributable to supply-side constraints: Micron’s equipment relocation from Taiwan to the U.S. will reduce its output over the next two to four quarters, while SK Hynix’s Wuxi plant has further scaled back DDR4/LPDDR4 capacity as it shifts toward rear‑end packaging for DDR5. Meanwhile, enterprise‑grade DDR4 demand from eSSD and data center applications continues to strengthen. The firm projects that DDR4 prices could rise by approximately 20% in the third quarter. New Growth Drivers: SLC NAND and SiCap Offer Upside for Valuation Reassessment: Beyond traditional DRAM, the report highlights two emerging growth catalysts. First is SLC NAND, which, owing to its superior read/write speeds, is increasingly adopted by data centers to meet high‑performance workloads, opening up a larger addressable market (TAM) for Greater China‑based suppliers such as GigaDevice, Winbond, and Macronix. Second is SiCap (silicon capacitors), a niche memory segment that has emerged as a new growth engine; Winbond Electronics has expanded its foundry business in this area through collaboration with SEMCO. These emerging opportunities are viewed as key levers for driving a re-rating of stock valuations. Stock‑Specific Views and Substantial Earnings Revision Upgrades: 1. Winbond Electronics (2344.TW): Upgraded to Overweight, with the target price raised sharply from NT$100 to NT$222. The firm revised up its 2026–2028 EPS estimates by 23%, 65%, and 94%, respectively, reflecting stronger DDR4 pricing, expanding SLC NAND markets, and contributions from SiCap foundry services. Valuation is based on a P/B multiple, with the base case implying a 2026 P/B ratio of 5.5x. 2. Nanya Technology (2408.TW): Upgraded to Overweight, with the target price increased from NT$278 to NT$380. EPS forecasts for 2026–2028 were raised by 15%, 29%, and 33%, respectively. Supporting factors include robust DDR4 pricing, additional long‑term agreements (LTAs) with server and enterprise SSD customers, and the addition of 5,000 wafers per month of DDR5 capacity starting in Q3 2026. The base case assumes a 2026 P/B ratio of 3.22x. 3. GigaDevice (603986.SS): While maintaining an Overweight rating, the target price was raised by 68% from RMB 348 to RMB 585. EPS estimates for 2026 and 2027 were revised upward by 58% and 60%, respectively. Key drivers include a rebound in DDR4 prices, opportunities in the SLC NAND space, growing MCU market share—particularly in automotive MCU localization—and expectations of mass production of 16G LPDDR4 and 32G DDR4 on CXMT’s fourth‑generation platform. Valuation employs a residual income model (RIM), implying a 2026 P/E ratio of 46x.

Analysis framework

The research report employs a canonical “supply–demand framework” combined with a “volume–price decomposition” analytical approach. First, it quantifies the extent of supply-side contraction by tracking capacity adjustments at major competitors—Micron and SK Hynix—as well as equipment relocation driven by geopolitical factors. Second, by integrating downstream demand trends in data centers and enterprise‑grade SSDs, it constructs a supply–demand balance sheet, calculates the widening supply–demand gap, and thereby infers the likelihood of average selling price (ASP) increases. Finally, it maps price elasticity to individual firms’ financial statements, significantly revises EPS forecasts by raising revenue and gross margin assumptions, and, drawing on historical valuation ranges (such as P/B bands) along with the premium attributable to new business lines, derives new target prices. This top‑down-to‑bottom‑up analysis—bridging macro‑level industry supply and demand to micro‑level corporate earnings—is the cornerstone of cyclical equity research.

Methodology notes

• Industry/Industrial Analysis FrameworkSupply-and-Demand Framework

  By analyzing changes on both the supply side—namely, capacity cuts by Micron and SK Hynix—and the demand side—specifically enterprise‑grade servers and SSD demand—we calculate the supply‑demand gap.

  The core logic of the research report hinges on a supply–demand imbalance: as supply contracts and demand expands, the supply–demand gap widens—from 14% to 19%–20%—directly bolstering product pricing power and driving price increases, thereby boosting manufacturers’ profitability.

• Valuation MethodologyPB valuation

  We value Winbond Electronics and Nanya Technology using the price-to-book (P/B) multiple.

  For memory IDM manufacturers with highly volatile earnings, the price-to-book (P/B) multiple offers greater stability than the price-to-earnings (P/E) ratio. Based on an improving industry cycle and emerging business opportunities, the research report assigns a P/B multiple above the historical average—for example, raising Winbond’s multiple from 2.7x to 5.5x.

• Valuation MethodologyRIM Residual Income Model

  We use the Residual Income Model to value Zhaoyi Innovation.

  This model determines intrinsic value by discounting the present value of a company’s future excess earnings—those exceeding its cost of capital—making it well-suited for valuing technology firms with long-term growth potential and better able to capture their enduring value rather than short-term volatility.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Winbond Electronics (2344.TW)

  Beneficiaries: Rising DDR4 prices, expansion of the SLC NAND market, and growth in SiCap foundry services.

  Strengths

  Diversified product portfolio (DRAM/NOR/SLC NAND), with SiCap’s new business driving incremental growth.

  Weaknesses

  The logic-based business is facing headwinds.

  Comparison

  The target price has been raised by the largest margin—doubling—reflecting an optimistic outlook on new business initiatives and price elasticity.

  Risks

  NOR Flash prices have declined, the DRAM market has reverted to oversupply, and SLC NAND development has lagged behind expectations.

• Nanya Technology (2408.TW)

  Beneficiaries: Widening supply-demand gap for DDR4, rising long-term agreements (LTAs), and the ramp-up of new DDR5 production capacity.

  Strengths

  Focusing on DRAM, the company stands to benefit from the market share reallocation resulting from major manufacturers’ exit from the DDR4 segment.

  Weaknesses

  Facing competitive pressure from Chinese manufacturers, such as ChangXin.

  Comparison

  Rating upgraded to Overweight, with significant room for valuation recovery.

  Risks

  Weak demand for specialty DRAM, intensifying competition in China, and a slower-than-expected pace of technology migration.

• Zhaoyi Innovation (603986.SS)

  Beneficiaries: MCU localization substitution, NOR Flash price hikes, and DRAM business recovery.

  Strengths

  In China, the company’s market share in the MCU segment continues to grow, with significant opportunities in automotive MCUs, and its NOR flash memory is steadily closing the quality gap.

  Weaknesses

  The DRAM business relies on its partner, ChangXin.

  Comparison

  The target price has been significantly raised, implying a relatively high P/E ratio, which reflects recognition of the company’s growth prospects and its potential to drive domestic substitution.

  Risks

  NOR Flash prices have fallen sharply, MCU competition has intensified, and DRAM business growth has stalled.

Key data

• 2026 H2 DDR4 Supply-Demand Gap19-20%This represents a significant widening from the previously expected 14%, providing support for higher prices.
• 2027–2028 DDR4 Supply-Demand Gap18-20%Expected to remain at elevated levels.
• Q3 DDR4 Price Increase Expectations~20%Driven by supply constraints and robust demand
• HuaBang Electronics EPS Upside Revision幅度23% / 65% / 94%Corresponding to 2026/2027/2028, respectively.
• Zhaoyi Innovation’s EPS revision magnitude58% / 60%Corresponding to 2026 and 2027, respectively.

Impact & implications

The research report argues that memory manufacturers in Greater China are currently experiencing an supply-driven upcycle. With major international players either exiting or scaling back their DDR4 production capacity, incumbent Taiwanese and mainland Chinese firms—such as Nanya, Winbond, and GigaDevice—are well positioned to fill the resulting market gap and benefit from rising prices. This not only enhances near-term profitability but also opens up long-term growth opportunities through new business lines like SLC NAND and SiCap, potentially prompting a re-rating of these companies’ valuation multiples.

Risks

• NOR Flash prices have declined due to weak demand.
• The DRAM market has once again experienced oversupply, leading to price declines.
• SLC NAND technology development or market adoption is slower than expected.
• Technological and pricing pressures from Chinese and other regional competitors
• Macroeconomic downturn has resulted in weaker-than-expected end‑user demand, including for PCs, smartphones, and servers.

What to watch

• Monthly price trends of DDR4 and NOR Flash
• Capacity adjustments and supply conditions at Micron and SK Hynix
• The adoption of SLC NAND in data centers
• Customer expansion of Huabang’s SiCap business
• Zhaoyi Innovation’s DRAM mass-production progress on the ChangXin platform