Legacy memory still offers structural opportunities, but slowing DDR4 momentum brings asymmetric risks

Overview

This report focuses on the Greater China and Asia-Pacific legacy memory supply chain. The core judgment is that the legacy memory cycle remains supported by tight supply and demand, but the opportunities are uneven. Morgan Stanley continues to believe Legacy NAND, especially MLC NAND, is superior to DDR4; within legacy DRAM, specification migration and advanced packaging-related new opportunities will determine stock differentiation.

Core views

The main theme of the report is 'selectively bullish.' Near-term DDR4 prices and earnings may be strong, but as the pace of price increases slows, KV cache compression, server system optimization, long-term contract discussions, and CXMT's increased DDR4 support limit upside in share prices. By contrast, supply exits and capacity reallocation in MLC NAND and NOR Flash create stronger pricing momentum. AP Memory benefits from AI ASIC and Intel EMIB-T opportunities through silicon capacitors, IPD, and WoW packaging; GigaDevice benefits from NOR Flash, MCU localization, new LPDDR4/DDR4 platforms, and potential WoW specialty memory opportunities.

Analysis framework

The report combines supply-demand models, quarterly price trends, company earnings forecast revisions, residual income valuation models, and a bull/base/bear risk-reward framework to rank the legacy memory supply chain and individual stocks on a relative basis. At the industry level, it compares the price elasticity and durability of MLC NAND, NOR Flash, and DDR4; at the company level, it focuses on ratings, target prices, and earnings revisions for AP Memory, GigaDevice, Macronix, PSMC, Winbond, and Nanya.

Methodology notes

• Industry cycle analysisSupply-demand gap and price momentum framework

  Determine legacy memory price trends through quarterly supply, demand, and oversupply/undersupply ratios.

  Supply and demand for DDR4 remain tight, but the report believes pricing momentum will slow in 2H26; MLC NAND and NOR Flash have stronger price elasticity due to supply exits and capacity reconfiguration.

• Valuation methodsResidual income model

  Use cost of equity, payout ratio, terminal growth, and medium-term growth assumptions to derive target prices.

  AP Memory's target price is based on a 9.2% cost of equity, a 67% payout ratio, a 3% terminal growth rate, and a 12.8% medium-term growth rate; GigaDevice's target price is based on an 8.9% cost of equity, a 40% payout ratio, and a 3% terminal growth rate.

• Risk/rewardBull/Base/Bear case

  Estimate upside and downside scenarios using different assumptions for revenue, gross margin, business progress, and valuation multiples.

  AP Memory's bull case depends on rapid scaling in AI, IPD, and WoW; the bear case depends on slower business progress and intensified PSRAM competition. GigaDevice's bull case depends on upside in NOR, MCU, DRAM, and WoW; the bear case focuses on a downcycle in NOR and intensified competition.

Asset mapping & comparison

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

• Macronix 2337.TW

  One of the core beneficiaries of rising MLC NAND and NOR Flash prices

  Strengths

  The report continues to rate it Overweight and believes Macronix may help accelerate MLC NAND/NOR pricing power from 2Q26.

  Weaknesses

  Sensitive to the legacy memory price cycle; if supply-demand tightness eases, earnings and valuation elasticity will decline.

  Comparison

  Compared with DDR4 suppliers, the report prefers Legacy NAND, especially MLC NAND.

  Risks

  Price increases below expectations, weakening demand, and supply recovery faster than expected.

• AP Memory 6531.TW

  A beneficiary of opportunities in AI ASIC, EMIB-T, IPD, and WoW packaging

  Strengths

  Target price raised to NT$777; the report believes it is Taiwan's main EMIB-T proxy, and its silicon capacitor and IPD businesses may bring significant incremental gains.

  Weaknesses

  Valuation is already at a high level; the new target price implies 2026e P/E of 48x, more than one standard deviation above the historical average.

  Comparison

  Relative to traditional legacy memory companies, AP Memory's differentiation comes from AI, IPD, WoW, and advanced packaging-related content value.

  Risks

  Intel EMIB-T yield and execution risks, uncertainty over customer prepayment progress, slower-than-expected scaling of IPD and WoW, and intensified PSRAM competition.

• GigaDevice 603986.SS

  A beneficiary of NOR Flash, MCU localization, DRAM platform migration, and LPDDR4/DDR4 opportunities

  Strengths

  Target price raised to Rmb348; the report expects GigaDevice to continue gaining share in China's MCU market and to advance 16G LPDDR4 and 32G DDR4 on the CXMT Gen 4 platform in 2027.

  Weaknesses

  The view on DDR4 is more cautious, and medium-term and terminal growth assumptions were lowered to reflect legacy memory cycle risks.

  Comparison

  Compared with pure price-cycle plays, GigaDevice also has opportunities in MCU localization, rising NOR prices, and new DRAM product platforms.

  Risks

  Falling NOR prices, intensified MCU competition, DRAM business suspension or progress below expectations, and gross margin below expectations.

• PSMC 6770.TW

  A beneficiary of legacy DRAM specification migration

  Strengths

  The report sees specification migration as a 2027 highlight for PSMC and rates it Overweight.

  Weaknesses

  The legacy memory cycle is highly volatile, and business performance depends on specification migration and the pricing environment.

  Comparison

  Within legacy DRAM, the report believes specification migration and new opportunities will lead to differentiation among stocks.

  Risks

  Specification migration progress below expectations, slowing DRAM pricing momentum, and weakening demand.

• Winbond 2344.TW

  A name tied to the legacy memory cycle

  Strengths

  Can benefit from tight legacy memory supply-demand conditions and rising prices.

  Weaknesses

  The report rates it Equal-weight, indicating lower relative preference than Macronix, AP Memory, GigaDevice, and PSMC.

  Comparison

  It ranks lower in the report's preference order.

  Risks

  DDR4 or other legacy memory price declines, and earnings elasticity lagging higher-priority names.

Key data

• DDR4 2Q26 price increase expectationabout 60%The report believes pricing momentum will slow in 2H26 after 2Q26.
• DDR4 8Gb price viewlikely soon above USD204Gb prices may be above USD10, reflecting near-term supply tightness.
• MLC NAND and NOR Flash 2Q26 price increase potentialup to about 100%The report believes high double-digit gains can continue into 2H26.
• AP Memory new target priceNT$777Raised from NT$607; the new target price implies 2026e P/E of 48x and 2027e P/E of 30x.
• AP Memory EPS revisions2026/2027/2028e raised by 2%/13%/13%, respectivelyReflecting preliminary 1Q26 sales, improved IPD outlook, and improving IoT pricing environment.
• AP Memory EMIB-T incremental revenue potentialcan exceed 50% relative to the 2026e levelSilicon capacitor content value may be close to USD100 per chip.
• GigaDevice new target priceRmb348Raised from Rmb301; the new target price implies 2026e P/E of 43x.
• GigaDevice EPS revisions2025e raised by 2%, 2026e largely unchanged, 2027e raised by 13%Reflecting 4Q25 revenue and 16G LPDDR4 and 32G DDR4 opportunities in 2027.

Impact & implications

For investors, legacy memory is not a broad bullish call; it is necessary to distinguish the durability of price increases, whether price expectations are already reflected, and whether new businesses can bring incremental upside beyond the cycle. MLC NAND, NOR Flash, and advanced packaging-related names offer more structural opportunities; although DDR4 has short-term earnings elasticity, valuation upside is more constrained amid slowing momentum and the risk of new supply.

Risks

• DDR4 price increases slow in 2H26, causing legacy memory stock price elasticity to be weaker than earnings elasticity.
• KV cache compression, server system optimization, and long-term contract negotiations weaken DDR4 demand or price durability.
• CXMT increases DDR4 support, creating additional supply pressure.
• Uncertainty remains around Intel EMIB-T's mass-production yield, execution capability, and experience serving external customers.
• TSMC CoWoS reticle support and CoPoS progress may affect the allocation ratio for EMIB-T.
• AP Memory's IPD, WoW, and AI businesses may scale more slowly than expected, or customer prepayment progress may fall short of expectations.
• GigaDevice faces risks from a NOR downcycle, intensified MCU competition, and DRAM business development below expectations.

What to watch

• Whether MLC NAND and NOR Flash achieve price increases close to 100% in 2Q26 and can maintain high double-digit gains in 2H26.
• Whether DDR4 8Gb breaks above USD20 and 4Gb breaks above USD10, and whether the pace of price increases slows in 2H26.
• Whether AP Memory receives prepayments from end customers, an important signal that the EMIB-T opportunity is materializing.
• Intel EMIB-T's pilot production, yield, and mass-production timetable, especially the 2027 trial run and 2028 mass production plan.
• Capacity allocation among AI ASIC customers such as Google, AWS, and Meta between Intel EMIB-T and TSMC CoWoS/CoPoS.
• GigaDevice's ramp-up progress in 2027 for 16G LPDDR4 and 32G DDR4 on the CXMT Gen 4 platform.
• The actual contribution of NOR Flash, MCU, IPD, and WoW packaging to AP Memory's and GigaDevice's gross margins and revenue mix.