AI Remains the Core Driver of Greater China Tech Hardware

Overview

This report was issued by Morgan Stanley, focusing on the tech hardware industry in the Greater China region. The core idea is that artificial intelligence (AI) remains the most important growth engine in this sector. The report analyzes how AI drives hardware demand from multiple dimensions and lists its key companies and ratings, aiming to provide investors with macro-level insights into the future trends of this industry.

Core views

The report's core view is that despite changing market conditions, AI remains the most central theme and growth driver in the Greater China tech hardware industry. The report points out that AI development is driving hardware demand from multiple aspects, including AI servers, advanced packaging technologies, and semiconductor equipment. Based on this, Morgan Stanley maintains an 'In-Line' industry rating for the entire Greater China tech hardware industry. At the company level, the report lists several key covered enterprises. Among them, Hon Hai Precision (Hon Hai Precision), TSMC (TSMC), MediaTek (MediaTek), and SMIC (SMIC) received the positive 'Overweight' rating, indicating analysts' optimism about their performance in the AI wave. At the same time, some companies such as Luxshare and GoerTek received 'Underweight' ratings. The report emphasizes that investors should not take the research views as a single decision factor and should be aware of potential conflicts of interest between the companies and the investment banks.

Analysis framework

This report adopts a typical macro and industry combined analysis framework. First, it establishes a macro theme - 'AI Still at the Center Stage', and then analyzes its overall impact on a specific region (Greater China) and a specific industry (tech hardware), giving industry-level views (In-Line). Secondly, the report screens and evaluates specific listed companies driven by this theme through a bottom-up approach. It uses a relative rating system (Overweight, Equal-weight, Underweight) to sort individual stocks, helping investors identify the most likely to outperform or underperform the market in the AI trend. This logic chain from macro themes to industry judgments and then to stock selection is a common analytical path for sell-side research institutions.

Methodology notes

• Industry/Industrial Analysis FrameworkUpstream-Downstream Industrial Chain Transmission

  Analyzing how AI development drives the complete industrial chain from upstream chips, midstream equipment and manufacturing, to downstream end products

  Although the report does not elaborate, its coverage range (semiconductors, equipment, contract manufacturing, components) reflects the application of the AI hardware industrial chain transmission logic, i.e., breakthroughs in upstream AI chips will drive demand for midstream manufacturing and equipment, ultimately affecting downstream product forms.

• Valuation methodsPE/PEG valuation

  Using metrics such as price-to-earnings (P/E) and price-to-earnings relative to growth (PEG) for comparative valuation among companies

  The report includes a 'Comparison of Valuations for Greater China Tech Hardware' table, indicating that analysts used relative valuation methods such as PE to compare the valuation levels of different companies, which is one of the most basic valuation methods in stock research.

• Event Game and Behavioral FinanceExpectation Difference/Expectation Management

  Focusing on the difference between market consensus expectations and the actual performance or future potential of companies

  The report positions AI as a core theme, implying that analysts believe the market may have an inadequate understanding of or need to continuously reinforce the potential of AI to drive hardware growth. This is a way to manage or guide investor expectations by emphasizing long-term trends.

Asset mapping & comparison

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

• Hon Hai Precision (Hon Hai Precision)

  Benefiting from strong demand in AI servers and advanced packaging fields

  Strengths

  A leading global electronics manufacturing service provider, with strong capabilities and scale advantages in AI server assembly and advanced packaging technology

  Comparison

  Compared to Pegatron, a major contract manufacturer, Hon Hai has a broader and more advanced layout in AI-related businesses

  Risks

  Intensifying competition, technological iteration risks

• TSMC (TSMC)

  As the world's most advanced semiconductor foundry, directly benefiting from the strong demand for AI chips

  Strengths

  Has an absolute leading position in advanced processes (such as 3nm, 2nm), and is a core supplier for AI chip design companies such as NVIDIA

  Comparison

  Far ahead of competitors such as UMC and Winbond in advanced process technology

  Risks

  High capital expenditures, geopolitical risks

• Luxshare (Luxshare)

  Faces challenges in the consumer electronics sector, with limited contribution from AI-related businesses

  Weaknesses

  Business overly dependent on major clients like Apple, weak demand in consumer electronics puts pressure on its performance

  Comparison

  Compared to Hon Hai, which received an Overweight rating, its progress in new areas like AI servers is considered relatively lagging

  Risks

  High customer concentration, new product expansion falling short of expectations

Key data

• Industry RatingIn-Line (In-Line)Morgan Stanley's overall view of the Greater China tech hardware industry
• Key Company RatingsOverweight (Overweight)Companies such as Hon Hai, TSMC, MediaTek, and SMIC received Overweight ratings
• Data Benchmark DateJune 3, 2026The date when the stock prices and valuation data cited in the report were referenced

Impact & implications

This report means that for tech hardware companies in the Greater China region, whether they can deeply participate in the AI-related industrial chain (especially servers, advanced processes, and packaging) will become the key to determining their future growth prospects. Companies receiving 'Overweight' ratings are seen as being in a favorable position in this trend and may attract more capital attention. At the same time, the report also reminds investors that investment banking business relationships exist between the bank and the companies mentioned, and independent judgment is needed for investment decisions.

Risks

• Morgan Stanley has investment banking business relationships with several companies mentioned in the report, which may affect the objectivity of the research.
• Market expectations for AI may be too high; if technological development or commercialization progresses slower than expected, it could lead to significant declines in related stocks.
• A global economic downturn, trade friction, or geopolitical tensions may impact the tech hardware supply chain and demand.

What to watch

• Changes in AI server shipments and order visibility.
• Capacity expansion and yield rates of advanced packaging technologies (such as CoWoS).
• Financial guidance and market feedback from major AI chip companies (such as NVIDIA).