Morgan Stanley Bullish on Japanese, South Korean and Chinese Semiconductor Plays Over AI Boom
The artificial intelligence theme continues to dominate sentiments and outlooks in the equity markets. While the focus has been on US companies with exposure to revolutionary technology, Morgan Stanley analysts believe there is also value to unlock in Chinese, South Korean and Japanese semiconductor plays.
Morgan Stanley Upgrades
The US investment banker has upgraded the Chinese semiconductor sector to attractive from inline. The upgrade comes amid a big tussle between the US and China over semiconductor technologies. The US has imposed a ban on US companies sharing their semiconductor technologies with Chinese partners over national security concerns.
Morgan Stanley strategists have also upgraded South Korea’s semiconductor plays led by Samsung Electronics Co and SK Hynix. The Japanese chip sector, on the other hand, has been upgraded to attractive from Inline. According to analysts, tech deflation, price elasticity, and strong artificial intelligence demand will trigger the next upcycle in the market.
Morgan Stanley’s bullish view on the region’s semiconductor plays comes on upgrading some names in October. Initially, it targeted specific plays in South Korea and Taiwan. With the chip gauges in the two countries rallying by more than 25%, it’s become increasingly clear the sector is experiencing tremendous growth amid increased focus and use of AI innovations.
AI Boom Earnings Boost
The upgrades come when the semiconductor industry is enjoying robust growth. Revenues linked to semiconductors for powering artificial intelligence have increased by 1.7% since April. Nvidia has been one of the brightest spots in the sector, delivering better-than-expected first-quarter results. Its market value has more than doubled as it remains investors’ favorite for gaining exposure in the sector.
Strong demand for chips to power artificial intelligence solutions has been the catalyst behind renewed attention and focus on caps stocks in the market. Chip giants delivering better than expected results has also helped strengthen investor sentiments in anticipation of further increase with increased adoption and use of AI solutions
Some semiconductor plays have already started revising their earnings estimates upwards as the AI boom continues to fuel strong demand for the chips, unlocking new revenue opportunities. Taiwan Semiconductor is one of the companies that has seen an increase in orders over the past few weeks.
Companies developing graphics processing units or GPUs stand to be the biggest beneficiaries of the AI boom. With Nvidia indicating that $1 trillion of data center infrastructure will have to be upgraded to supper heightened computing power due to AI, there are tremendous opportunities for chip companies.
AI Boom Disruptions
While generative artificial intelligence is expected to accelerate productivity and prosperity due to increased computing power, it is also expected to trigger profound disruptions in some sectors. With more business activities from sales and marketing becoming embedded in software, some people and sectors are expected to lose out.
The transformation and the need for enhanced efficiencies are expected to put pressure on the labor force, especially higher-wage workers. Workers whose activities were initially considered immune to automation stand to pay a high price. Reports indicate that about half of workers’ hours could end up being automated with AI, thus rendering thousands of people jobless. There is already an indication that up to 60% of jobs could disappear due to automation-powered AI tools.
