Due to persistent shortages, Morgan Stanley is extremely optimistic about the memory outlook for 2026.

Supply growth in 2026 will do little to alleviate the severe supply shortage: both Samsung and SK Hynix's DRAM bit shipments in Q1 2026 were flat or only slightly increased (low single digits). Samsung's NAND flash shipments grew 5% from a previously low base, while Hynix saw negative growth.

We expect prices to rise further this year. Samsung did not provide price guidance, but we believe this could mean that the average selling price of DRAM/NAND flash in Q2 2026 will increase by nearly 50% quarter-on-quarter. Even assuming that some of the price increases do not ultimately translate into actual selling prices for the company, a 50% increase should be considered a lower expectation.

Producers have extremely low inventory on their balance sheets: customers who cannot obtain the required supply are unable to build inventory, and this is also true for the most important customers, who have even paid above current contract prices to secure supply 30 days in advance, thereby capturing all the new supply.

We expect DRAM wafer starts to grow by only 7% year-on-year by the end of 2026, mainly due to capacity increases at Samsung and Hynix fabs, while fabs such as Shanghai CXMT, Hynix M15X, and Samsung P4L cannot fill this gap in the short term. The capacity increase at Micron's Boise fab and the fab in partnership with Powerchip will not be realized until 2027.

Over the next 12 months, the annualized total revenue of AI is expected to reach $200 billion, but supply cannot keep up with this growth rate: this mainly comes from:

NVIDIA expects to add $30 billion in revenue each quarter from now until the end of 2026;

AMD's data center business is expected to double to $10 billion per quarter.

Broadcom's semiconductor business is expected to double to approximately $25 billion per quarter;

After the merger of Marvell and Intel, new revenue reached $1 billion.

Chinese memory risk is extremely low: the expansion of both CXMT and YMTC is constrained by the following factors:

Supply shortage - Chinese memory manufacturers are as severely short of inventory as other countries, and their technology level lags far behind the mainstream, especially in DRAM (mainly supplying 4.8GHz DRAM, while the mainstream is 5.6GHz);

China's ongoing restrictions prevent it from purchasing US capital equipment, which is a major challenge for companies with single-digit market share (by revenue).