AI-driven demand for high-value-added components, Morgan Stanley bullish on Murata and TDK
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AI-driven demand for high-value-added components, Morgan Stanley bullish on Murata and TDK
Morgan Stanley notes that the valuation gap between companies relying solely on price hikes and those steadily enhancing competitiveness will widen. Key recommendations include Murata Manufacturing, TDK, Hirose Electric, and Niterra, with a downgrade to Taiyo Yuden.
- Expectation of increasing valuation gap between companies leveraging opportunistic pricing vs those improving product competitiveness
- Overweight Murata Manufacturing: profit expansion in high-value-added MLCC and improved capacity utilization
- Overweight TDK: profit expansion in lithium batteries and HDD-related products
- Overweight Hirose Electric: profitability growth in general industrial machinery and AI server connectors
- Overweight Niterra: continuous profitability growth in spark plugs, exhaust gas sensors, and SPE electrostatic chucks
- Downgrade Taiyo Yuden to Underweight: limited upside space from MLCC miniaturization/high-capacitance improvement
- Ibiden expected to maintain nearly 100% market share in NVIDIA FC substrates
Report interpretation
Overview
This report is a summary of Morgan Stanley's electronic components industry meeting at the 2026 Japan Summer School Conference. The core argument is that with the expansion of AI and data center demands, there will be significant valuation divergences within the electronics component industry. Firms that rely merely on cyclical or opportunistic price increases versus those that continuously enhance product competitiveness through technological iteration and enter high-value-added fields like AI servers and premium automotive applications will see an increasingly large gap in valuations. This report covers细分areas such as MLCCs, connectors, lithium batteries, and passive components, providing clear rating adjustments and outlooks for several leading companies.
Core views
Reshaping Industry Valuation Logic: The report clearly states that the market will favor firms with 'steadily improving product competitiveness,' rather than those solely dependent on 'opportunistic pricing.' This divergence becomes especially apparent against the backdrop of accelerating AI data center construction, where demand expansion for high-value-added products serves as the main driver. Logic Behind Key Recommendations: 1. Murata Manufacturing (Murata Mfg): As the top pick, its logic lies in the profit expansion of high-value-added MLCCs (multi-layer ceramic capacitors) and improved production capacity utilization. With the trend towards smaller and higher-performance electronic devices, the demand for premium MLCCs remains strong. 2. TDK: Optimism stems from expanding profits in lithium battery (LiB) sectors and stable performance in HDD-related products. Additionally, TDK has optimized its business portfolio through major acquisitions and divestitures, boosting overall profitability. 3. Hirose Electric: Benefiting from the recovery of general industrial machinery and growing demand for AI server connectors, its profitability is expected to continue expanding. 4. Niterra: Besides maintaining steady growth in traditional areas like spark plugs and exhaust gas sensors, the semiconductor manufacturing use of SPE electrostatic chucks represents a new growth point. Cautious/downgraded stock: Taiyo Yuden: Downgraded from 'In-Line' to 'Underweight.' Although the company is advancing MLCC miniaturization and high capacitance, the institution believes that the potential upside from product mix improvements is very limited, insufficient to support current valuation levels. Other key observations: 1. Ibiden: Expected to maintain close to 100% market share in NVIDIA's FC (flip-chip) substrate sector, demonstrating its absolute monopoly position in advanced AI chip packaging materials. 2. Alps Alpine: Anticipated contribution of new smartphone camera actuators to profitability, addressing challenges posed by smartphone price compression and slowing technological innovation. 3. HDD Market: Despite SSD penetration, HDD still holds a place in data centers for large-capacity storage, offering specific opportunities for suppliers of related motors and head components like Minebea Mitsumi.
Analysis framework
The analysis approach primarily combines bottom-up fundamental screening with top-down industry trend validation. First, identifying technology evolution paths in AI data centers and high-end consumer electronics (like smartphones)—such as miniaturization, high capacity, and high-speed transmission—to pinpoint benefiting sub-component segments (e.g., premium MLCCs, high-speed connectors, FC substrates). Second, comparing each company’s market share, technical barriers, and capacity布局 in these high-growth segments distinguishes 'true growth' from 'cyclical fluctuations.' Finally, integrating valuation discipline excludes companies that only benefit from short-term price hikes without long-term competitiveness improvements, favoring those achieving sustained profit expansion through product structure optimization. This method emphasizes 'competitiveness' over mere 'cyclical upturn' when assessing value.
Methodology notes
Product Competitiveness & Pricing Power
The report stresses differentiating between 'opportunistic pricing' and 'product competitiveness enhancement'; the former being short-term supply-demand mismatches’ windfall, the latter stemming from technological barriers granting long-term pricing power—a crucial determinant of a company’s long-term valuation floor.
AI Capital Expenditure Transmission to Components
Analyzing how hyperscalers’ increased capital expenditure specifically transmits to upstream component manufacturers (e.g., FC substrates, connectors, MLCCs), identifying segments where value addition is most pronounced in the supply chain.
Valuation Gap & Earnings Growth Match Rate
By comparing P/E ratios and expected earnings growth rates across different companies, the report indicates the market is re-pricing, assigning higher valuation premiums to firms with strong, definite high-value-added product growth while suppressing pure cyclical stocks.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Murata Manufacturing (6981.T)Beneficiary: Expansion of High-Value-Added MLCC Demand Driven by AI and Automotive Applications
- Strengths
- Top Industry Pick, Increasing Share of High-Value-Added Products, Improved Utilization Rates
- Comparison
- Superior to Taiyo Yuden Due to More Significant Product Competitiveness Improvement
- TDK (6762.T)Beneficiary: Profit Expansion in Lithium Batteries and Robust Performance in HDD Business Following Strategic Portfolio Optimization
- Strengths
- Enhanced Efficiency from Major Acquisitions and Divestitures, Strong LiB Business Growth
- Taiyo Yuden (6976.T)Adversely Affected/Low Expectations: Limited Upside from Product Mix Improvements
- Weaknesses
- Intense Competition in MLCC Miniaturization/High Capacitance, Declining Valuation Appeal
- Comparison
- Weaker Than Murata Manufacturing
- Risks
- Significant Downward Risk
- Ibiden (4062.T)Beneficiary: Core Supplier for NVIDIA AI Chip FC Substrates
- Strengths
- Near 100% Market Share, Extremely High Technical Barriers
- Comparison
- Monopolistic Advantage in AI Substrate Field
Key data
- Ibiden's Market Share in NVIDIA FC SubstratesNearly 100%Expected to Maintain Monopoly Position
- Change in Taiyo Yuden's RatingEW → UWDowngraded to Underweight on June 17th
- Rating for Murata ManufacturingOW (Overweight)Top Pick
- Rating for TDKOW (Overweight)Optimistic about Lithium Battery and HDD Business
Impact & implications
For investors, this means more granular stock selection within the electronics component sector—not simply beta-style allocation across the whole industry. Focus should be on companies deeply integrated into AI infrastructure (e.g., NVIDIA supply chain) or possessing technical barriers in high-end automotive/industrial fields. Companies reliant on traditional consumer electronics cycles without new product highlights may face valuation pressure despite short-term earnings rebounds. The report cautions that with smartphone prices under pressure and innovation slowing, relevant component suppliers need to seek new growth points (e.g., Alps Alpine's camera actuator).
Risks
- Smartphone Price Compression and Slowing Technological Innovation May Impact Component Demand
- Exchange Rate Fluctuations Affecting Electronics Manufacturers' Competitiveness
- Lower-than-Expected AI Data Center Capital Expenditure
- Raw Material Price Volatility
What to watch
- Capacity Utilization and Price Trends of High-Value-Added MLCCs
- NVIDIA FC Substrate Orders and Ibiden's Market Share Maintenance
- Speed of TDK's Lithium Battery Business Profit Expansion
- Continuity of Demand for AI Server Connectors
- Actual Effectiveness of Taiyo Yuden's Product Mix Improvements