Morgan Stanley Raises DRAM Equipment Spending Forecast, Bullish on Storage Expansion Cycle

Overview

This report primarily updates Morgan Stanley's global semiconductor memory chip (DRAM and NAND) wafer fab equipment (WFE) spending and bit supply forecasts. Core conclusion is significant upward revision of WFE and supply expectations in the DRAM area, driven mainly by customers undertaking advance brownfield equipment upgrades to meet demand; meanwhile, NAND WFE forecast adjusted slightly, but bit supply growth expectation raised due to improved yields. Report believes DRAM equipment spending still has upside potential, and briefly analyzes valuation and risks of key equipment makers such as Applied Materials.

Core views

DRAM area sees significant revision. The report raised DRAM WFE forecasts for 2026 and 2027 from $44.6B/$57.1B to $48.6B/$62.5B respectively. Greenfield capacity forecasts adjusted slightly, while brownfield upgrade assumptions increased significantly, which is the main driver of the revision. Meanwhile, 2026/2027 DRAM bit supply growth forecasts raised from 26%/32% to 29%/33%. Institutions note DRAM WFE forecasts remain biased optimistic because customers are making every effort to advance spending to lock in capacity. NAND area focuses on supply growth driven by yield. NAND WFE forecasts adjusted slightly, 2026/2027 at $15.7B/$24.1B respectively (originally $15.9B/$24.0B). Although wafer starts changes little, institutions assumed higher yields, driving bit supply growth forecasts up from 21%/32% to 24%/31%. While signs of NAND WFE acceleration are emerging and inevitable, institutions believe this trend will not fully manifest in the short term. Key Drivers and Target Perspective. HBM trade ratio effect is significant, approximately 27% of bits expected to become 'loss bits' due to HBM production losses by 2028, indirectly supporting upstream equipment demand. For Applied Materials (AMAT), the report notes it is gaining market share in logic architecture shifts (such as back-side power delivery), but current valuation is around 28x 2027 expected EPS, discounted relative to LAM and KLA, reflecting concerns about losing share in China.

Analysis framework

The report adopts a typical 'top-down' industry supply-demand analysis framework. First, through channel checks (checks), found DRAM equipment procurement is accelerating, combined with judgment that Micron Technology (MU) CapEx guidance may be raised, revised WFE model bottom-up. Secondly, applied 'volume-price split' and 'yield analysis' logic, distinguished greenfield capacity from brownfield upgrades contribution to WFE, and specifically emphasized non-linear amplification effect of yield improvement on NAND bit supply. Finally, combined technology evolution (such as bit loss caused by HBM, logic architecture shifts) to assess structural changes in long-term equipment demand.

Methodology notes

• Industry/Industrial Analysis FrameworkVolume-Price Split

  Decompose total supply growth of memory chips into two dimensions for analysis: Wafer Starts and Bits per Wafer (affected by layer count, yield).

  When analyzing NAND, the report noted that although wafer starts changed little, significant bit supply growth was derived by assuming higher yields. This method helps readers understand why equipment spending (correlated with wafer count) and final product supply (correlated with bit count) might diverge.

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Analyze capital expenditure (WFE) as a leading indicator on the supply side, combined with downstream demand expectations, to determine industry sentiment turning points.

  By raising WFE forecasts, the report implies supply side is actively expanding, and customers 'fully advancing spending' indicates strong demand side. This supply-demand matching analysis is the core method for determining semiconductor cycle position.

• Valuation MethodologyPE/PEG valuation

  Compare valuation levels of different companies in the same industry using Price-to-Earnings (PE) multiples, combined with growth prospects to explain premium/discount reasons.

  Report noted AMAT's 2027 expected PE is 28x, discounted by 6x and 5x compared to LAM and KLA respectively, attributing this to concerns over losing market share in China. This demonstrates how to use relative valuation combined with specific risk factors to explain stock price performance.

Asset mapping & comparison

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

• Applied Materials Inc. (AMAT.O)

  Beneficiary, as global leading semiconductor equipment maker, will benefit from growth in DRAM and logic chip equipment spending.

  Strengths

  Gaining market share in logic architecture shifts (e.g., back-side power delivery); Good growth prospects in DRAM business.

  Weaknesses

  Faces risks from broad export restrictions on equipment and services to China; Potential share loss at key clients (Samsung, TSMC).

  Comparison

  Valuation discounted compared to LAM and KLA, reflecting market concerns about China business risks.

  Risks

  Escalating export restrictions to China; Key client share loss.

Key data

• 2026 DRAM WFE Forecast$48.6 billionRevised up from $44.6 billion, primarily driven by brownfield upgrades
• 2027 DRAM WFE Forecast$62.5 billionRevised up from $57.1 billion
• 2026 DRAM Bit Supply Growth29%Revised up from 26%
• 2027 DRAM Bit Supply Growth33%Revised up from 32%
• 2026 NAND WFE Forecast$15.7 billionSlightly adjusted from $15.9 billion
• 2027 NAND WFE Forecast$24.1 billionSlightly adjusted from $24.0 billion
• Bit Loss Ratio Due to HBM in 2028Approximately 27%'Loss bits' caused by HBM trading ratio

Impact & implications

For the semiconductor equipment industry, DRAM spending revision implies industry average WFE will reach high levels of $58 billion during 2026-2028, benefiting top equipment manufacturers. For memory chip manufacturers, fierce capacity race and yield improvements will determine market position; Micron Technology CapEx guidance becomes a key tracking indicator. Report warns that although NAND WFE acceleration is inevitable trend, investors need to wait patiently for financial performance realization.

Risks

• Broad restrictions on shipments and services to China.
• Applied Materials losing market share at key clients (e.g., Samsung, TSMC).

What to watch

• Whether Micron Technology (MU) 2026/27 fiscal year CapEx guidance is raised.
• Continuity and scale of DRAM customer equipment procurement acceleration.
• Actual progress of NAND yield improvements and impact on bit supply.