According to a recent report from BusinessKorea, Morgan Stanley published its “Winter Looms” analysis, following last month’s “Prepare for the Peak,” which warned of an AI bubble. The report continues to take a bearish view on Korean memory chipmakers, citing weak demand for general DRAM and an oversupply of AI-specific high bandwidth memory (HBM).

Morgan Stanley projects that in 2024, global HBM supply will hit 250 billion gigabits (Gb), far exceeding demand, estimated at 150 billion Gb—a surplus of 66.7%. The firm also points to Samsung Electronics’ aggressive expansion into the HBM market as a major factor driving this potential oversupply.

BusinessKorea cited industry insiders who argue that Morgan Stanley’s outlook is excessively pessimistic. They note that the HBM market is driven by customized, client-approved products, making oversupply less likely. Both SK Hynix and Samsung Electronics have publicly stated that HBM supply is fully booked through 2025.

Critics further contend that Morgan Stanley has underestimated the scale of AI investment by major tech firms, which is the main driver of HBM demand. While the report projects that AI investment growth from 10 major tech companies will drop sharply from 52% this year to 8% next year, Bloomberg forecasts a 33.7% rise this year and a 13.4% increase in 2025 across 13 leading tech firms.

Morgan Stanley also predicts that general DRAM will peak in Q4 2024 and begin a multi-year decline through 2026, citing weak demand for semiconductor-reliant IT products. The global PC and smartphone markets have indeed been sluggish, with reports indicating that pre-orders for Apple’s iPhone 16 series were down 13% compared to its predecessor. However, the same report noted that Samsung Electronics and SK Hynix have both stated that demand for memory in smartphones and PCs remains stable.

TrendForce Senior Vice President Avril Wu noted that while DRAM prices have shown signs of weakness over the past two quarters, the overall average selling price is expected to rise by 2025. Wu added that as HBM continues to take up more conventional DRAM production capacity, pricing across different products may vary, but the increasing penetration of HBM should help stabilize the DRAM market, leaving the firm less pessimistic about next year’s outlook.

(Photo credit: Samsung)

The market started worrying about the oversupply in semiconductor 2023, when the demand will start growing again depends on two factors: the situation of the macroeconomy and the inventory status.

Since foundries’ capacity utilization rates started drop in 3Q22, chip supply as a whole has decreased significantly. This, in turn, has helped limit inventory growth across the supply chain. However, the global economy is still at risk of a mild recession, so consumers may allocate more of their spending to daily necessities. They may also spend more on tourism due to easing of the pandemic. This could lead to weak sales for consumer electronic products.

Not to mention that most consumers already purchased the electronic products that they need for working or studying at home during the pandemic. Assuming that the overall inventory level of the supply chain will return to a healthier level, TrendForce believes that chip demand will begin to rebound to a certain extent in 2Q23. Then, the demand growth will become more obvious from 3Q23 onward. Nevertheless, this demand growth may not be too strong due to uncertainties in the global economy.

If we observe the situation from the perspective of the foundry industry, smartphones represent the largest application segment in terms of wafer consumption. The smartphone supply chain started inventory correction earlier, so demand rebound might be more obvious initially for smartphone-related chips compared with chips used in other consumer devices. On the other hand, with different benchmarks, the demand for HPC chips will show more significant growth compared with the demand for smartphone chips.