Morgan Stanley Says AI-Driven Memory-Chip Inflation Could Last for Years
Surging artificial-intelligence demand is driving memory-chip prices sharply higher, fueling what some are calling “chip inflation.” Morgan Stanley has warned that the rapid increase in memory-chip demand and the resulting high prices are unlikely to end soon and could persist for years. Erik Woodring, a Morgan Stanley analyst, issued a report Tuesday on how companies should respond to rising memory-chip prices, drawing market attention. “First, it is becoming increasingly clear that enterprises view memory ‘chip inflation’ as a structural headwind that could last for years,” Woodring wrote. “Rather than waiting for prices to cool, enterprises are rapidly prioritizing and accelerating purchases of personal computers, servers and storage arrays to lock in the best prices and reduce the risk of supply shortages—a phenomenon sometimes described as ‘fear of missing out’ on procurement opportunities.” Woodring added that he believes earnings expectations for enterprise-hardware companies, particularly those tied to server and storage themes, still have room to rise. Specifically, he said he favors HP, Pure Storage (Everpure), TD SYNNEX and Lenovo. “Hardware stocks have risen more than 100% since the beginning of 2025, and in the United States their aggregate price-to-earnings ratio has reached as high as 25 times, nearly twice the previous peak,” Woodring wrote. “In other words, we may be closer to the end of the upcycle than the beginning, and hardware-stock valuations are historically high.” But he added: “Not all stocks are the same. Rather than chase stocks whose valuations have already risen sharply, that are trading well above their historical ranges and that rely too heavily on cyclical tailwinds, we prefer to maintain investment discipline. We still believe there are opportunities at this stage of the cycle to invest in quality stocks that benefit from more durable infrastructure spending and are supported by structural valuation tailwinds and further margin expansion.” Separately, JPMorgan strategist Jay Kwon also offered his view on the memory-chip sector this week. He believes the chip shortage will not end for at least two years. In a report published Monday, Kwon said demand is driving memory-chip prices and shipment volumes higher at the same time. JPMorgan raised its forecast for the global memory market from 2026 through 2028 by 4% to 8%, estimating that the market will grow from about $969 billion in 2026 to $1.44 trillion in 2027 and $1.82 trillion in 2028. He emphasized that the supply-demand shortage will continue for the next two years and could worsen further in 2027, with only modest easing in 2028. The ratio of customer demand to supply is expected to remain just 70% to 80% next year. The comments from SanDisk’s chief executive on the market during last week’s earnings call may have been even more pointed. “Over the past two or three quarters, we have spent a great deal of time in deep discussions with our largest customers to ensure that they commit to buying our products,” SanDisk CEO David Goeckeler said. “We now have more than four years of market demand secured. We are very pleased with the company’s current market outlook.” That statement further suggests that the “memory crisis” is unlikely to ease soon. It could even last longer than the periods described by Morgan Stanley and JPMorgan.
Erik Woodring, a Morgan Stanley analyst, issued a report Tuesday on how companies should respond to rising memory-chip prices, drawing market attention.
“First, it is becoming increasingly clear that enterprises view memory ‘chip inflation’ as a structural headwind that could last for years,” Woodring wrote. “Rather than waiting for prices to cool, enterprises are rapidly prioritizing and accelerating purchases of personal computers, servers and storage arrays to lock in the best prices and reduce the risk of supply shortages—a phenomenon sometimes described as ‘fear of missing out’ on procurement opportunities.”
Woodring added that he believes earnings expectations for enterprise-hardware companies, particularly those tied to server and storage themes, still have room to rise. Specifically, he said he favors HP, Pure Storage (Everpure), TD SYNNEX and Lenovo.
“Hardware stocks have risen more than 100% since the beginning of 2025, and in the United States their aggregate price-to-earnings ratio has reached as high as 25 times, nearly twice the previous peak,” Woodring wrote. “In other words, we may be closer to the end of the upcycle than the beginning, and hardware-stock valuations are historically high.”
But he added: “Not all stocks are the same. Rather than chase stocks whose valuations have already risen sharply, that are trading well above their historical ranges and that rely too heavily on cyclical tailwinds, we prefer to maintain investment discipline. We still believe there are opportunities at this stage of the cycle to invest in quality stocks that benefit from more durable infrastructure spending and are supported by structural valuation tailwinds and further margin expansion.”
Separately, JPMorgan strategist Jay Kwon also offered his view on the memory-chip sector this week. He believes the chip shortage will not end for at least two years.
In a report published Monday, Kwon said demand is driving memory-chip prices and shipment volumes higher at the same time. JPMorgan raised its forecast for the global memory market from 2026 through 2028 by 4% to 8%, estimating that the market will grow from about $969 billion in 2026 to $1.44 trillion in 2027 and $1.82 trillion in 2028.
He emphasized that the supply-demand shortage will continue for the next two years and could worsen further in 2027, with only modest easing in 2028. The ratio of customer demand to supply is expected to remain just 70% to 80% next year.
The comments from SanDisk’s chief executive on the market during last week’s earnings call may have been even more pointed.
“Over the past two or three quarters, we have spent a great deal of time in deep discussions with our largest customers to ensure that they commit to buying our products,” SanDisk CEO David Goeckeler said. “We now have more than four years of market demand secured. We are very pleased with the company’s current market outlook.”
That statement further suggests that the “memory crisis” is unlikely to ease soon. It could even last longer than the periods described by Morgan Stanley and JPMorgan.