Key Takeaways:
Morgan Stanley boosted its price target on Semiconductor Manufacturing International Corp. by 21% to HK$85, citing a looming up-cycle for mature-node foundries as the artificial intelligence boom shifts global capacity.
"The reallocation of capacity by industry leaders like TSMC and Samsung to advanced AI-related processes is creating spillover demand for second-tier foundries," Morgan Stanley said in a May 20 report.
The bank lifted its 2026-2028 earnings per share forecasts for SMIC by 10-14% on strong guidance and pricing power. For Hua Hong Semiconductor, the target was raised 34% to HK$118, reflecting strong demand for its AI-related power management chips.
The upgrades suggest growing investor conviction that even foundries focused on older process nodes will benefit significantly from the AI infrastructure buildout. Morgan Stanley now expects a shortage in mature-node capacity to emerge in the second half of 2027.
Morgan Stanley's increased conviction in SMIC (00981.HK) led to an 11 percent, 14 percent, and 10 percent increase in its earnings per share forecasts for 2026, 2027, and 2028, respectively. The bank reiterated its "Overweight" rating on the stock.
The bullish outlook is based on strong second-quarter revenue and gross margin guidance from the company, which the bank believes is driven by robust expansion in advanced-node capacity, an improved product mix, and price hikes on its BCD (Bipolar-CMOS-DMOS) platform. Consequently, Morgan Stanley raised its revenue forecasts for SMIC for 2026 through 2028 by 9 to 15 percent.
For Hua Hong Semiconductor (01347.HK), Morgan Stanley raised its price target to HK$118 from HK$88 while maintaining an "Equalweight" rating.
The bank cited strong demand for AI-related power management semiconductors and potential price increases on the BCD platform, where Hua Hong has technical expertise. While acknowledging that consumer electronics may face headwinds from memory price hikes, the report states that demand for AI-related products should offset the negative impact. Morgan Stanley also noted encouraging momentum in Hua Hong's capacity and shipment growth, with its Fab 9 facility undergoing expansion. The bank raised its 2027 and 2028 earnings per share forecasts by 15 percent and 20 percent, respectively.
The revised price targets signal that demand from the AI sector is broad enough to lift suppliers across the semiconductor ecosystem, not just those producing the most advanced chips. Investors will be watching upcoming earnings from other foundries like UMC for further confirmation of this trend.
This article is for informational purposes only and does not constitute investment advice.
