GigaDevice: Short-term strength in legacy memory prosperity remains intact, and price strength may continue through the end of 2026

Overview

This report focuses on the Greater China semiconductor and legacy memory sectors, with GigaDevice Semiconductor Beijing Inc (603986.SS) as the core subject of discussion. On the evening of June 29, GigaDevice released an announcement stating that niche memory products have seen price increases due to supply gaps, while also warning that prices may fall sharply in the future as niche memory capacity expands. Morgan Stanley's view is that the near-term supply-demand and pricing environment for legacy memory remains positive, and the price strength of DDR4, SLC/MLC NAND, and NOR flash is expected to continue at least through the end of 2026.

Core views

The core view is to remain optimistic in the short term while monitoring the risks of capacity expansion in the longer term. The report believes GigaDevice's warning about future industry risks does not imply a substantive price decline in the near term; on the contrary, mainstream manufacturers' concentration of resources on mainstream memory products still leaves niche memory in a tight supply state. The report continues to maintain an Overweight view on the legacy memory names under coverage.

Analysis framework

The analysis starts from the company's announcement and combines judgments on the supply-demand dynamics, price trends, capacity expansion pace, and downstream demand elasticity of DDR4, SLC/MLC NAND, and NOR flash. The valuation section uses the residual income model as the basis for the target price and discloses key assumptions such as cost of equity, payout ratio, mid-term growth rate, and terminal growth rate.

Methodology notes

• Valuation methodsResidual income model

  Base-case value underlying the target price

  The report states that the target price is the base-case value derived from the residual income model; key assumptions include an 8.9% cost of equity, a 40% payout ratio, a 16.4% mid-term growth rate, and a 3.0% terminal growth rate.

• RatingMorgan Stanley relative rating system

  Overweight

  Overweight means the stock's risk-adjusted total return over the next 12-18 months is expected to be above the average total return of the analyst's industry coverage universe; this rating is not equivalent to a direct buy recommendation.

Asset mapping & comparison

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

• GigaDevice Semiconductor Beijing Inc (603986.SS)

  Core covered company, affected by the legacy memory price cycle and the supply-demand dynamics of niche memory.

  Strengths

  Benefits from the supply gap in niche memory, rising legacy memory prices, and development opportunities in NOR flash and DRAM.

  Weaknesses

  End demand is relatively stable but may be suppressed by price increases, and future capacity expansion may depress prices.

  Comparison

  Relative to the industry coverage universe, Morgan Stanley uses Overweight to indicate stronger expected relative returns over the next 12-18 months.

  Risks

  Weaker NOR demand, declining chip design competitiveness, slower-than-expected DRAM progress, and sharp price pullbacks caused by new niche memory capacity.

• Legacy memory sector

  The main industry focus of the report's view, covering DDR4, SLC/MLC NAND, and NOR flash.

  Strengths

  Price strength is expected to continue at least through the end of 2026, and mainstream manufacturers' resource concentration is creating supply gaps in niche products.

  Weaknesses

  Demand is not expanding rapidly, and price increases have already suppressed some end demand.

  Comparison

  Compared with more mainstream memory products, legacy memory is more visibly affected by supply allocation and niche demand.

  Risks

  If capacity expansion outpaces demand recovery, the industry may shift from tight supply to falling prices.

Key data

• Report date2026-07-01 06:06 GMTDisclosure time shown on the report's front page.
• Covered companyGigaDevice Semiconductor Beijing Inc (603986.SS)The principal company listed in the report.
• Target price888The value corresponding to 6/26/26 in the target price history; the currency is not explicitly specified in the input.
• Cost of equity assumption8.9%Composed of beta 1.1, a 2% risk-free rate, and a 6% risk premium.
• Payout ratio assumption40%A key assumption in the residual income model.
• Mid-term growth rate assumption16.4%A key assumption in the residual income model.
• Terminal growth rate assumption3.0%A key assumption in the residual income model.
• RatingOverweight (O)Both the rating history and the main text indicate a maintained OW/Overweight stance.

Impact & implications

In terms of investment implications, the report supports the view that the legacy memory chain still has near-term price and earnings elasticity, especially exposure related to DDR4, SLC/MLC NAND, and NOR flash. GigaDevice's announcement reminds investors not to ignore the risk of price declines after medium- to long-term capacity releases, but Morgan Stanley believes this risk has not yet constituted a near-term fundamental turning point.

Risks

• After niche memory capacity expands, a clear future price decline may occur.
• Price increases have already suppressed end demand to some extent.
• NOR may enter a downcycle due to weakening demand.
• If chip design is weaker than expected, the company may become more exposed to competition in mid- to high-density NOR.
• DRAM development may be slower than expected.
• The report discloses that Morgan Stanley has or seeks business relationships with some covered companies, and investors should pay attention to potential conflicts of interest.

What to watch

• Whether DDR4, SLC/MLC NAND, and NOR flash prices can continue through the end of 2026.
• The pace of new niche memory capacity releases and their impact on prices.
• Whether end demand continues to be suppressed by price increases.
• Changes in GigaDevice's wording on supply-demand, pricing, and capacity in subsequent announcements.
• The direction of the NOR cycle, DRAM development progress, and chip design competitiveness.
• Whether Morgan Stanley subsequently adjusts its Overweight rating or 888 target price.