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Surging demand, depleted inventories, memory is already a “seller’s market”… Morgan Stanley: investors shouldn’t exit on “peak fears” The demand wave triggered by AI is reshaping the global memory market. On October 19, Morgan Stanley noted in its latest report that the memory (storage) sector is in the early to middle stages of a strong up-cycle, and that even though related share prices have hit record highs, the “best” part of the rally may still lie ahead—so investors should not leave the market too early due to “peak fears.” Worsening supply shortage, shifting to a seller’s market Through channel checks, Morgan Stanley found that, aided by a surge in orders from U.S. cloud service customers, memory chip makers are quoting price hikes of up to 25% for DRAM and NAND flash for the fourth quarter of 2025. This shows the market is rapidly tilting toward the seller and that the momentum for price increases is strong. The report emphasized that the supply-demand imbalance in commodity memory is more severe than expected. DRAM vendors’ inventories have fallen sharply to less than two weeks, and NAND flash inventories have also returned to below their long-term average levels. The firm expects it will still take 4–6 quarters for new capacity to catch up with demand, and that supply delays will persist. Such an environment typically prompts customers to build buffer inventory, further solidifying the seller’s-market structure. “We believe the current rally is still in the early to middle stages… A return of prices to historical peaks would imply ‘double’ the potential from here. We have seen no evidence that seasonal demand softness will affect memory pricing for the first quarter of 2026… Such conditions typically lead customers to build buffer inventories, thereby strengthening the seller’s market.” How much further can prices rise? Morgan Stanley: still a “long way” from the peak Morgan Stanley believes current prices still have considerable upside before reaching historical highs. NAND flash: Given strong AI-led demand, prices are expected to “double” from current levels and return to the peak of about $0.13/GB seen in the second quarter of 2022. DRAM memory: Server memory module prices peaked at $10/GB in the first quarter of 2018, while current negotiated prices are about $5.4/GB. Considering that the potential total addressable market (TAM) for AI memory is expected to surpass that of the traditional commodity DRAM market by 2027, the report sees “sufficient grounds” for the price peak in this cycle to exceed the past. Move beyond “peak fears,” the key is “earnings momentum” Regarding the widely prevalent “peak fears” among investors, Morgan Stanley asserts this is a classic cognitive bias. “New highs usually call for higher highs, and this time there are sufficient earnings to support them; ‘staying in the market’ is more important than timing the market. The best phase of this rally is likely still ahead.” The report stresses that what drives stock prices is not merely the AI narrative but “earnings momentum.” Taking SK hynix and Samsung Electronics as examples, SK hynix’s share price has risen about 140% over the past 12 months, underpinned by a 62% upward revision in earnings forecasts; by contrast, Samsung Electronics’ share price rose only about 64%, with earnings forecasts raised by just 14%. This difference clearly shows that “stronger earnings upgrades deliver stronger share-price returns.” Analysts Shawn Kim and Duan Liu wrote in the report that it is almost impossible to time the market precisely, and that historical cycles show that during upswings, “time in the market” matters more than “timing the market.”