Morgan Stanley Research Analysis: Samsung Leads Global Profit Rankings, Yet Memory Super Cycle Remains Hard to Fully Value

Samsung Electronics' Q3 2026 operating profit reached approximately $81.3 billion, surpassing NVIDIA's $71.6 billion and making it the world's most profitable company. Shares of Samsung and SK Hynix have fallen 35% from their peaks, trading at a forward P/E ratio of just 3 to 4 times. Morgan Stanley notes that the storage supercycle is real, but the market refuses to pay a full valuation for unprecedented earnings.

In its Asia-Pacific Technology report released on October 11, 2026, Morgan Stanley pointed out that AI data center demand is driving the storage industry into a structural upcycle, with long-term contracts and price floors altering the sector's risk profile. The report also cautioned that a supercycle does not mean the end of cyclicality, as new supply will eventually arrive.

Profits Lead, But Stock Prices Fall 30%

Samsung Electronics' Q3 2026 operating profit reached approximately $81.3 billion, surpassing NVIDIA's $71.6 billion and making it the world's most profitable company. Shares of Samsung and SK Hynix have fallen 35% from their peaks, trading at a forward P/E ratio of just 3 to 4 times.

Morgan Stanley noted that the market is still pricing storage stocks within an old-cycle framework. Despite commitments to long-term contracts and more subdued cyclical expectations, valuations for storage vendors still assume a boom-and-bust cycle dominates. The market doubts the sustainability of current high profitability, as analysts tend to extrapolate peak-cycle prices into the future.

Storage stocks look cheapest at cycle peaks, which is a historical pattern. Morgan Stanley believes investors view the underlying assets separately from asset prices, a distinction particularly important after stock prices have rallied ninefold.

A Supercycle Does Not Mean No Cycle

AI data center construction demand exceeds the industry's supply capacity. The HBM market is expected to triple to $100 billion by 2028. Industry production capacity was sold out years in advance, with most deals tied to long-term contracts, some containing price floors and security deposits. These factors distinguish the supercycle from a standard cycle.

Morgan Stanley believes a supercycle does not signal the end of cyclicality. The current cycle is steeper, with prices per gigabyte approaching seven times past peaks. Supply catch-up or demand digestion could end the cycle, but this is unlikely to materialize for most of 2026 and 2027.

Historically, storage cycles ended when supply caught up with demand. Similar scenarios occurred in 2000, 2016, 2019, and 2022. Morgan Stanley expects no overcapacity in this cycle before 2027, though the exact timing remains unclear.

AI Demand Reshapes Storage Structure

AI data centers are the primary driver of storage demand. Edge AI is the next wave, with physical AI, humanoid robots, and autonomous vehicles also gaining traction. Each generation of new models requires more memory, and chip counts are rising.

HBM physically displaces standard DRAM capacity. In AI data center racks, GPUs account for roughly half of the Vera Rubin cluster costs, storage accounts for 29%, while networking, power, cooling, and facilities make up 23%. As data centers shift toward multi-rack architectures, the value of networking increases significantly, and storage's share may decline.

Morgan Stanley highlighted China as a key variable. Changjiang Storage holds an estimated 12% to 13% global share in the NAND market, utilizing 294-layer X-stacking technology with a monthly capacity of approximately 200,000 wafers. ChangXin Memory is rapidly expanding in DRAM and HBM3 segments, capturing about a 20% market share in China's HBM sector.

Portfolio Allocation Shifts Toward Computing and Networking

Morgan Stanley recommends underweighting storage and overweighting AI computing and networking supply chains. For computing, top picks include NVIDIA, TSMC, Broadcom, Marvell, and GUC. For networking, preferences lean toward optical modules, CCL, ABF substrates, and power semiconductors. For storage, selective positioning is advised, favoring Samsung, SK Hynix, and Kioxia.

DRAM contract prices are expected to rise 10% to 15% quarter-over-quarter in Q4, PC DRAM up 13% to 18%, and server DRAM up 10% to 15%. NAND prices are surging 15% to 20% sequentially, with enterprise SSDs up 23% to 28%. Morgan Stanley believes storage prices will remain firm in 2027, though growth will moderate.

Morgan Stanley pointed out that storage stocks may underperform until earnings revisions peak. During the 2008 cycle, storage stocks lagged four months before earnings peaked; in 2012, they led by four months; in 2018, they led by eight months. Current earnings revision breadth is slowing, making valuation margins of safety increasingly important.

The storage supercycle is real, but cyclicality has not disappeared. The market's cautious pricing of storage stocks has historical precedent. Morgan Stanley suggests seeking higher certainty in computing and networking sectors while taking a selective approach to storage. Subsequent monitoring should focus on industry supply and demand digestion.

Disclaimer

This article summarizes and interprets a third-party broker research report (Morgan Stanley, October 11, 2026) by TechFlow Research, combined with publicly available market information. The ratings, target prices, earnings forecasts, and related judgments cited herein reflect solely the views of the respective broker's analysts, represent only the stance of their affiliated institutions, do not constitute the views of TechFlow Research, and should not be construed as any investment advice.

Markets carry risks, and decisions must be independent. This article should not serve as a basis for buying or selling any securities.

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