CXMT expansion eases DDR4 supply tightness; Morgan Stanley remains cautious on DDR4-exposed stocks

Overview

This is a Morgan Stanley company research update on the expansion of legacy memory DDR4 supply, focusing on the impact of higher CXMT-related procurement budgets on DDR4 supply-demand dynamics and the investment case for related stocks. The report also discloses GigaDevice Semiconductor Beijing Inc (603986.SS)'s valuation method, target price, rating history, and key upside and downside risks.

Core views

The core view is that CXMT-related transaction budgets jumped from Rmb1.161bn in 2025 and the previously disclosed Rmb1.547bn for 1H26 to Rmb5.711bn, showing that stronger demand, higher foundry costs, and procurement volume growth are jointly driving supply expansion. Morgan Stanley believes this further confirms that the DDR4 supply shortage is easing. In particular, the market had previously expected CXMT to focus more on HBM and DDR5, but DDR4 expansion now means the supply-demand dynamic is changing, strengthening the cautious view on DDR4-exposed stocks.

Analysis framework

The report cross-analyzes the changes in CXMT transaction budgets disclosed by the company with DDR4 capacity expansion, wafer prices, procurement volume growth, and memory supply-demand relations, and evaluates GigaDevice's investment value using Morgan Stanley's relative rating system, industry view, and residual income valuation model.

Methodology notes

• Valuation modelResidual income model

  Target price derivation

  The Rmb301 target price is the base-case value, with key assumptions including 8.9% cost of equity, beta of 1.1, 2% risk-free rate, 6% risk premium, 40% dividend payout ratio, 16.0% medium-term growth rate, and 3.0% terminal growth rate.

• Rating systemMorgan Stanley relative stock rating

  Overweight/Equal-weight/Underweight

  Overweight means that the risk-adjusted total return over the next 12-18 months is expected to be above the average of the analyst's industry coverage universe; Equal-weight means roughly in line; Underweight means below average.

• Industry viewMorgan Stanley Industry View

  Attractive/In-Line/Cautious

  Attractive means that over the next 12-18 months the industry coverage universe is expected to perform attractively relative to the relevant broad market benchmark; the report discloses the Asia Pacific industry view as Attractive.

Asset mapping & comparison

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

• GigaDevice Semiconductor Beijing Inc (603986.SS)

  Research subject / entity for rating and target price disclosure

  Strengths

  Maintained Overweight rating; increased exposure to low-density NOR and chip design advantages are cited as upside factors.

  Weaknesses

  If chip design proves weaker than expected and mid- to high-density NOR exposure increases, this could pose downside risk.

  Comparison

  The Rmb301 target price implies about 26.4% upside versus the 03/31/2026 price of Rmb238.10; industry view is Attractive.

  Risks

  A easing of the DDR4 shortage, changes in product mix, and shifts in wafer prices and procurement volume could affect margins and valuation.

• CXMT

  Entity related to DDR4 supply expansion

  Strengths

  Growth in the related budget shows demand and procurement expansion, indicating that its DDR4 capacity increase may exceed prior market expectations.

  Weaknesses

  Expansion may ease shortages and suppress DDR4 pricing elasticity.

  Comparison

  The market had previously expected it to focus more on HBM and DDR5; this change shows that its DDR4 supply strategy is also strengthening.

  Risks

  If the pace and scale of expansion exceed expectations, DDR4-related stocks may face greater valuation pressure.

• DDR4-exposed stocks

  Stock basket affected by DDR4 supply-demand changes

  Strengths

  Rising demand and procurement volume still show support from end demand.

  Weaknesses

  Increased supply weakens the shortage thesis, and upside in prices may be limited.

  Comparison

  Compared with high-growth areas such as HBM and DDR5, legacy DDR4 memory's supply-demand improvement is more cyclical and supply-driven.

  Risks

  Supply recovery faster than demand growth, wafer-price volatility, and the market's repricing of the DDR4 earnings cycle.

Key data

• CXMT-related transaction budgetRmb5.711bnWell above Rmb1.161bn in 2025 and the previously disclosed Rmb1.547bn for 1H26.
• Target priceRmb301The base-case value derived from the residual income model.
• Current priceRmb238.10The GigaDevice price disclosed in the table for 03/31/2026.
• Implied upsideAbout 26.4%Estimated using the Rmb301 target price and the Rmb238.10 current price.
• Cost of equity assumption8.9%Includes beta of 1.1, a 2% risk-free rate, and a 6% risk premium.
• Medium-term growth rate / terminal growth rate16.0% / 3.0%Used in the residual income model.
• Rating historyOverweight since 05/15/2025The table shows GigaDevice's rating as O (05/15/2025).
• Latest value in price target history3/31/26: 301The 2026 target price was previously adjusted from 288, 355, and 414 to 301.

Impact & implications

The expansion of DDR4 supply weakens the price and margin elasticity previously supported by supply tightness, creating valuation and earnings pressure for DDR4-related names. However, GigaDevice remains rated Overweight, indicating that the analyst still sees the stock as having outperformance potential versus the broader coverage universe, with the key drivers being NOR product mix, chip design capability, and changes in memory supply-demand conditions.

Risks

• CXMT expansion eases the DDR4 supply shortage, which may compress related product pricing and margin elasticity.
• Rising wafer prices and higher foundry costs may weigh on the company's gross margin.
• If procurement volume growth does not translate into earnings growth, the budget increase may create inventory or cost pressure.
• If GigaDevice's chip design competitiveness weakens, or if it increases exposure to mid- to high-density NOR, downside risk may be triggered.
• Morgan Stanley discloses that it has investment banking, market-making, or other service relationships with multiple covered companies, and investors should consider potential conflicts of interest.

What to watch

• CXMT DDR4 capacity expansion progress and the actual pace of supply release.
• Changes in DDR4 prices, inventory, and customer procurement volume.
• Whether GigaDevice's subsequent target price and rating change in response to DDR4 supply-demand shifts.
• Changes in the low-density NOR versus mid- to high-density NOR product mix.
• The linkage among wafer foundry costs, procurement budgets, and gross margins.