SK Hynix, memory stocks tumble as Morgan Stanley turns bearish

Shares in memory chipmaker SK Hynix (HXSCL) fell more than 6% in South Korea trading Thursday after Morgan Stanley analysts double-downgraded the stock from Overweight to Underweight.

For now, “the sun is still shining” for SK Hynix, analysts said in a note. They expect 2024 to be another strong year for the chipmaker, fueled by higher DRAM prices heading into Q4, driving “exceptional near-term earnings.”

However, from Q4, the outlook is expected to change, analysts note. While the long-term potential for DRAM, especially from AI-driven data center demand, remains promising, it is tempered by the fact that cyclical shortages are nearing their end.

“Looking past 4Q24, we see sustained risks to the top line and EPS as growth slows, pricing falls, and rising competition in high-bandwith memory (HBM) challenges sustainable long-term margins,” analysts said.

Domestic memory chip rival Samsung Electronics (SSNLF (OTC:)) also fell over 2%.

Alongside a downgrade, Morgan Stanley also more than halved its price target on the SK Hynix stock from 260,000 to 120,000 Korean won.

The company has now become the least favored within the bank’s global memory stock coverage, with the Underweight-rated stock now also being its Top Pick.

Elsewhere, Stifel analysts reduced their estimates and price target for Micron (NASDAQ:), another popular memory chip stock, citing a slowing upcycle.

“We believe HBM demand is intact and calls for oversupply next year are unsubstantiated. Yet what is clear is that consumer electronics sellthrough (and more importantly, mix) has underwhelmed,” Stifel analysts said in a recent note.

“In our view this may create a lull in the market over the next few quarters, with memory suppliers reluctant to accept the trade-off of higher bit shipments in exchange for lower prices.”

The investment bank trimmed its price objective on Micron stock from $165 to $135.

However, in the long run, Stifel’s team believes the conditions they viewed as favorable for MU remain “intact and could set the stage for reinvigorated pricing strength next year.”