February 20, 2026 04:20 PM GMT Investor Presentation | Japan M Foundation Semiconductor Production Equipment: Tech Monthly Feb 2026 Morgan Stanley MUFG Securities Co., Ltd.+ Suzune Tamura, CFA Equity Analyst Suzune.Tamura@morganstanleymufg.com +81 3 6836-8891 Tetsuya Wadaki Equity Analyst Tetsuya.Wadaki@morganstanleymufg.com +81 3 6836-8890 Semiconductor Production Equipment Japan Industry View Attractive Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a re ...

Market Overview - The U.S. stock market experienced a significant decline, with the Nasdaq dropping by 2.0%, while the S&P 500 and Dow Jones fell by over 1% each, driven by concerns over AI's disruptive impact on traditional business models[9][10]. - The Hang Seng Index closed at 27,033, down 0.86% for the day, while the Hang Seng Tech Index fell by 1.65%[3]. Sector Performance - Major technology stocks in Hong Kong faced pressure, with Meituan and NetEase both declining over 4%, and Tencent and Baidu dropping more than 2%[9]. - The electric equipment sector showed strong performance, with Harbin Electric rising by 13.73% after forecasting a 57.2% increase in net profit for 2025[9]. - AI application stocks surged, with Zhizhu rising by 28.68% due to strong market demand and a price adjustment announcement[9]. Economic Indicators - The heavy machinery sector continued its upward trend, with sales of excavators in January 2026 increasing by 49.5% year-on-year, driven by both domestic and export demand[9]. - Consumer stocks showed weakness, with notable declines in companies like Jiumaojiu and Budweiser Asia, which reported a 6.0% drop in total sales for the fiscal year 2025[9]. Global Market Trends - Concerns about AI's impact on the labor market have affected real estate demand, leading to declines in commercial real estate stocks like CBRE and SL Green Realty[10]. - Defensive stocks such as Walmart and Coca-Cola recorded positive returns, indicating a shift towards safer investments amid rising market volatility[13].

Summary of Semiconductor Industry Conference Call Industry Overview - The conference call focused on the semiconductor industry, specifically the memory segment, including DRAM, NAND, and HBM (High Bandwidth Memory) [1][2][3][4][41][73]. Key Points Supply and Demand Dynamics - **DRAM Supply/Demand (S/D) Forecast**: - Expected undersupply of 4.9% in 2026 and 2.5% in 2027, revised from previous estimates of 3.3% and 1.1% respectively [2][10][14]. - Anticipated to be the most severe shortage in over 15 years, driven by strong demand from server-related applications and limited capacity additions [2][10]. - **NAND Supply/Demand (S/D) Forecast**: - Expected undersupply of 4.2% in 2026 and 2.1% in 2027, revised from previous estimates of 2.5% and 1.2% respectively [3][41][50]. - Driven by robust growth in enterprise SSD demand and limited supplier spending [3][41]. - **HBM Supply/Demand (S/D) Forecast**: - Expected undersupply of 5.1% in 2026 and 4.0% in 2027, significantly revised from previous forecasts of 0.7% and 1.6% [4][80]. - Increased demand from GPUs and ASICs, with ASICs expected to comprise 33% and 36% of HBM demand in 2026 and 2027 respectively [4][74]. Pricing and Margin Expectations - **DRAM Pricing**: - Forecasted to increase by 176% for SEC and 184% for Hynix in 2026, with operating margins expected to reach 71% for SEC and 79% for Hynix [35][68]. - **NAND Pricing**: - Expected to rise by 121% for SEC and 102% for Hynix in 2026, with operating margins projected at 40% for SEC and 44% for Hynix [68][69]. - **HBM Market Size**: - Total Addressable Market (TAM) for HBM expected to reach US$54 billion in 2026 and US$75 billion in 2027, reflecting increased demand from GPUs and ASICs [4][73]. Demand Drivers - **DRAM Demand**: - Global DRAM demand expected to grow by 25% in 2026 and 17% in 2027, primarily driven by server-related applications [11][12]. - Mobile DRAM demand forecast lowered by 7% for both years due to declining smartphone shipments and rising memory costs [12][13]. - **NAND Demand**: - Global NAND demand expected to grow by 22% in 2026 and 15% in 2027, with enterprise SSD demand projected to grow by 58% and 23% respectively [47][48]. - Mobile NAND demand forecast lowered to flat growth in 2026, marking the first time in history for no growth in this segment [48][49]. Company Highlights - **Key Beneficiaries**: - Companies such as Samsung Electronics, SK Hynix, SanDisk, Tokyo Electron, Ulvac, and Disco are expected to benefit from the tighter memory industry supply/demand dynamics [6][41]. Additional Insights - **Cost Analysis**: - Higher memory costs could lead to demand destruction in PCs and smartphones, but the expected undersupply is likely to keep the DRAM market tight [5]. - **Market Trends**: - The competitive landscape for HBM is expected to intensify, with SEC and Hynix increasing their HBM capacities to meet rising demand [81][79]. This summary encapsulates the critical insights from the conference call regarding the semiconductor memory market, highlighting supply/demand forecasts, pricing expectations, and key industry players.

Core Viewpoint - The storage chip market is facing the most severe supply shortage in 15 years, with Goldman Sachs raising expectations for supply-demand tension and warning of a significant gap in DRAM by 2026 [1][3]. DRAM Market Insights - Goldman Sachs predicts that the DRAM supply shortage will reach 4.9% in 2026 and 2.5% in 2027, significantly higher than previous estimates of 3.3% and 1.1% [4]. - The primary driver of this tension is the explosive growth in server demand, with expectations for server DRAM (excluding HBM) to increase by 39% and 22% in 2026 and 2027, respectively [5]. - In contrast, demand for mobile and PC DRAM is expected to slow significantly, with growth rates of only 7% and 5% in 2026 [6]. NAND Market Insights - The NAND market is also experiencing a tightening supply-demand situation, with shortages projected at 4.2% in 2026 and 2.1% in 2027, up from earlier forecasts of 2.5% and 1.2% [8]. - Strong growth in enterprise SSD demand is a key driver, with expectations for enterprise SSD demand to rise by 58% and 23% in 2026 and 2027 [8]. HBM Market Insights - Goldman Sachs has raised the total addressable market (TAM) for HBM to $540 billion in 2026 and $750 billion in 2027, reflecting improved demand from GPUs and ASICs [11]. - ASIC demand is accelerating, with HBM demand from ASICs expected to increase by 27% and 14% in 2026 and 2027, respectively [12]. Investment Recommendations - Goldman Sachs maintains a buy rating on Samsung Electronics and SK Hynix, citing their strong positions in the traditional memory market and expected significant profit margins [15][16]. - Micron's rating has been downgraded to neutral with a target price of $235, as most positive factors have already been priced in [18]. - For equipment stocks, Tokyo Electron is highlighted for its strong market share in leading DRAM manufacturing tools, while Ulvac and Disco are recommended for their roles in capital expenditures related to DRAM and HBM [18].

Core Viewpoint - Goldman Sachs warns that the market is on the brink of the most severe memory chip supply shortage in the past 15 years, with significant supply-demand gaps expected in DRAM, NAND, and HBM categories from 2026 to 2027 [1] DRAM Market Insights - Goldman Sachs has significantly raised its DRAM supply shortage expectations, predicting a shortfall of 4.9% in 2026 and 2.5% in 2027, surpassing previous forecasts of 3.3% and 1.1% [2] - The core driver of this tight situation is the explosive growth in server demand, with expectations for server DRAM (excluding HBM) demand increased by 6% and 10% for 2026 and 2027, respectively, leading to growth rates of 39% and 22% [3] - In contrast, PC and mobile DRAM demand forecasts have been downgraded, with mobile DRAM growth expected to slow to 7% in 2026 and PC DRAM growth at only 5% [4] NAND Market Dynamics - The NAND market is also experiencing significant tightening, with supply-demand gaps projected at 4.2% and 2.1% for 2026 and 2027, respectively, marking one of the largest shortages in the history of the NAND industry [5] - Strong growth in enterprise SSD demand is a major driving force, with expectations for enterprise SSD demand increased by 14% for both 2026 and 2027, leading to growth rates of 58% and 23% [5] - Mobile and PC NAND demand is expected to weaken, with mobile NAND demand forecasted to see zero growth in 2026, marking a historical low [7] HBM Market Developments - Goldman Sachs has raised its HBM total addressable market (TAM) expectations to $54 billion and $75 billion for 2026 and 2027, respectively, reflecting improved demand from GPUs and ASICs [8] - ASIC demand is accelerating, with HBM demand for ASICs expected to increase by 27% and 14% for 2026 and 2027, respectively, while GPU demand is only expected to rise by 1% and 5% [9] - Despite an increase in HBM capacity expectations, supply-demand gaps are projected to reach 5.1% and 4.0% for 2026 and 2027, respectively, due to higher demand adjustments [9] Cost Analysis and Market Implications - A detailed BOM cost analysis indicates that memory costs are rising, with DRAM and NAND costs expected to account for approximately 23% of the total BOM for iPhones by Q3 2026, the highest level since 2010 [10] - Even under extreme negative scenarios, DRAM demand is still expected to grow by 21% in 2026, indicating persistent supply-demand tightness [11] Investment Recommendations - Goldman Sachs maintains buy ratings for Samsung Electronics and SK Hynix, citing their significant exposure to traditional memory markets and expected profitability improvements [12] - Micron's rating has been downgraded to neutral with a target price of $235, as most positive factors are believed to be priced in [13] - For equipment stocks, Tokyo Electron is highlighted for its strong market share in leading DRAM manufacturing tools, while Ulvac and Disco are recommended for their roles in capital expenditures related to DRAM and HBM [13]

Core Viewpoint - Goldman Sachs warns that the market is on the brink of the most severe memory chip supply shortage in the past 15 years, with significant supply-demand gaps in DRAM, NAND, and HBM categories expected in 2026-2027 [1] DRAM Market Summary - Goldman Sachs significantly raised its DRAM supply shortage forecast, predicting a shortfall of 4.9% in 2026 and 2.5% in 2027, surpassing previous estimates of 3.3% and 1.1% [2] - The core driver of this tight situation is the explosive growth in server demand, with server DRAM demand (excluding HBM) expected to increase by 39% and 22% in 2026 and 2027, respectively [3] - In contrast, PC and mobile DRAM demand forecasts were downgraded, with mobile DRAM growth expected to slow to 7% in 2026 and PC DRAM growth at only 5% [4] - Global DRAM supply is projected to grow by 21% and 19% in 2026 and 2027, respectively, with limited capacity expansion from major suppliers [4] NAND Market Summary - The NAND market is also tightening, with supply-demand gaps expected to reach 4.2% in 2026 and 2.1% in 2027, higher than previous forecasts [5] - Strong growth in enterprise SSD demand is a major driver, with expectations for a 58% and 23% increase in enterprise SSD demand in 2026 and 2027 [5] - Mobile and PC NAND demand is expected to show significant weakness, with mobile NAND demand forecasted to experience zero growth in 2026 [6] HBM Market Summary - Goldman Sachs raised its HBM total addressable market (TAM) forecast to $540 billion in 2026 and $750 billion in 2027, reflecting improved demand from GPUs and ASICs [7] - ASIC demand for HBM is expected to accelerate, with forecasts for HBM demand from ASICs increased by 27% and 14% in 2026 and 2027, respectively [7] - Despite an increase in HBM capacity forecasts, supply-demand gaps are expected to reach 5.1% and 4.0% in 2026 and 2027, respectively, due to higher demand adjustments [8] BOM Cost Analysis - A detailed BOM cost analysis indicates that memory costs for smartphones and PCs are expected to rise significantly, with iPhone DRAM and NAND costs projected to reach about 23% of total BOM by Q3 2026 [9] - Even under extreme scenarios, DRAM demand is expected to grow by 21% in 2026, maintaining a supply-demand imbalance [9] Investment Recommendations - Goldman Sachs maintains buy ratings for Samsung Electronics and SK Hynix, highlighting their significant exposure in traditional memory markets [10] - The 2026 traditional DRAM pricing is expected to rise by approximately 176-184%, with operating profit margins reaching historical highs [11] - Micron's rating was downgraded to neutral with a target price of $235, as most positive factors have already been priced in [12]

Group 1 - The Nikkei 225 Index fell 0.9% to close at 53,818.04, influenced by technology stocks amid valuation concerns and a broader Asian market slump due to rising AI investment costs [2][3] - SoftBank Group experienced a significant decline of 7% after its affiliated chip design firm Arm Holdings missed analysts' expectations on licensing revenues [2][3] - Semiconductor-related stocks saw notable drops, with Rohm down 9.1%, Advantest down 4.8%, and Disco down 4.4% in early Tokyo trading [2][3] Group 2 - The pharmaceuticals sector emerged as the top performer among the Tokyo Stock Exchange's 33 industry groups, driven by Astellas Pharma's 10% surge after the company raised its net profit forecast for the fiscal year by nearly five times [2][3] - There were 137 advancers on the Nikkei index compared to 88 decliners, indicating the significant influence of a few heavyweight tech names [2][3] - Despite the overall market decline, selective buying tied to earnings is expected to continue in Japan [2][3]

Key Insights - The report indicates that the recent market adjustments in A-shares and Hong Kong stocks are primarily technical and emotional, with a positive medium-term outlook for Chinese assets as liquidity and fundamentals remain favorable [2][3] - The report highlights the resilience of the funding environment, despite a significant net outflow of 320 billion yuan from ETFs, suggesting that there is still strong underlying demand for certain asset classes [3] - The manufacturing PMI for January fell to 49.3%, indicating contraction, while the non-manufacturing index also declined to 49.4%, suggesting potential challenges in economic activity [5][6] - The nomination of Kevin Warsh as the next Federal Reserve Chair is expected to influence market sentiment, particularly regarding inflation expectations and interest rates, which may impact risk assets [5][10] - The report discusses the recent performance of high-dividend sectors, noting that they have outperformed the market as risk appetite declines, with recommendations to focus on stable high-dividend stocks [11][12] - The report emphasizes the ongoing interest in IPOs in the Hong Kong market, with a strong performance in recent listings, suggesting continued investor appetite for new equity offerings [12][30] - The introduction of a unified capacity pricing mechanism for independent energy storage is expected to enhance the profitability and stability of the energy sector, particularly for leading companies in the storage and power generation space [27][28] - The report notes the recovery in the second-hand housing market, with increased transaction volumes and stable prices, particularly in first-tier cities, indicating a potential rebound in the real estate sector [24][29] - The report highlights the commercial acceleration of microbial protein production, driven by regulatory approvals and increasing demand for alternative protein sources, suggesting a growing investment opportunity in this sector [25]

Summary of Key Points from Conference Call Records Industry Overview - The global semiconductor industry is expected to approach $1 trillion by 2026, with significant growth in the storage sector. The hardware segment is projected to outperform the software segment, with raw materials, storage, and semiconductor equipment showing strong performance, while consumer electronics brands are expected to be the most affected, with Apple being relatively less impacted [1][4]. Smartphone Market - Global smartphone shipments are forecasted to decline by 6.7% in 2026, with Apple and Samsung remaining stable, while Chinese brands are expected to drop by 14% due to storage shortages affecting brands like Huawei, Honor, Xiaomi, OPPO, and vivo [1][9]. Capital Expenditure Trends - Microsoft and Meta are projected to increase their capital expenditures significantly in 2026, with Meta's spending rising from $70 billion to $120 billion, and Microsoft also showing over 40% growth. However, internet companies are only expected to see a 15% revenue increase, leading to tighter cash flows [1][10]. ASML and Equipment Market - ASML reported a record high in EUV order revenue, with over 100% year-on-year growth, driven by major clients like TSMC and storage manufacturers concerned about supply shortages [1][11]. Lam Research predicts a WFE market growth of over 20% in 2026, significantly higher than the 10% forecast by SEMI, driven by TSMC's 2nm transition and DRAM manufacturers' shift from HBM3 to HBM4 [1][13]. Company-Specific Insights - **Apple**: The company reported strong performance with iPhone 17 demand exceeding supply, and a 23% quarter-on-quarter revenue increase. However, concerns remain regarding storage shortages and SOC supply issues, which may impact margins [2][8]. - **Samsung**: The company saw a significant improvement in operating profit, with a rise from 14% to 21%. The semiconductor division's profit doubled to 16 trillion KRW, primarily due to DRAM and NAND price increases [1][17]. - **Hynix**: The company is expected to launch a new storage product, HBF, in late 2026, which will enhance AI inference capabilities. Hynix has a leading advantage in HBM technology [1][3][18]. - **Intel**: The target price for Intel has been raised to $71.5 based on significant advancements in process technology and successful execution of the IDM 2.0 strategy, attracting investments from both government and private sectors [1][23]. Market Valuation Changes - The valuation method for the storage industry has shifted from PB to PE, reflecting market recognition of stable profitability and growth potential for companies like Micron and Hynix. Hynix is currently valued at 9.4 times PE, with its target price raised based on strong financial performance [1][19]. HBM Technology Impact - The development of HBM technology is significantly impacting the storage market, enhancing performance and addressing heat issues. Samsung is leading in HBM4 technology, while Micron is also advancing its HBM4E plans to meet future demand [1][20]. Supply and Demand Dynamics - The global DRAM market is dominated by Micron, Samsung, and Hynix, with limited new capacity expansion expected, leading to a tight supply situation. The NAND market is similarly constrained, with major players controlling pricing and capacity [1][21]. Investment Recommendations - Hynix is identified as a preferred investment target due to its technological advantages, particularly in HBM technology, while Micron is also performing well but is slightly less favorable in comparison [1][22]. This summary encapsulates the critical insights and projections from the conference call records, providing a comprehensive overview of the semiconductor industry and key players.

Core Viewpoint - Toto's stock price surged by 10.09%, marking its largest intraday increase in five years, driven by rising global demand for storage chips and expectations for growth in its lesser-known chip manufacturing materials business [2][4]. Group 1: Stock Performance - Toto's stock performance on Thursday made the ceramic sector the best-performing segment of the Tokyo Stock Exchange, with a year-to-date increase of approximately 20% [2]. - The surge coincided with a broader rise in AI-related stocks in the Japanese market, including significant gains for SoftBank Group and Disco, both exceeding 10% [4]. Group 2: Analyst Insights - Goldman Sachs analysts upgraded Toto's rating from neutral to buy, anticipating significant profit growth in its silicon wafer handling tools business due to the tight supply-demand environment in the storage chip industry [6]. - The analysts highlighted that the demand for NAND chip manufacturing equipment, particularly electrostatic chucks, is expected to benefit from the global AI infrastructure development [6]. Group 3: Business Operations - Toto, known for its warm water toilet seats, has been involved in the semiconductor and display supply chain for decades, with its electrostatic chucks contributing up to 42% of total operating profit in emerging business areas for the fiscal year ending March 2025 [7]. - The electrostatic chuck is essential in semiconductor manufacturing, ensuring stable and clean silicon wafers during processes like PVD, CVD, and ETCH, while also providing temperature control [7]. Group 4: Industry Context - The global semiconductor supply shortage is being exacerbated by significant investments from companies like Meta and Amazon in AI service data centers, leading to increased demand for products from companies like Toto [7]. - Japan's strong semiconductor manufacturing background has allowed various companies, including those in non-traditional sectors, to expand into semiconductor-related businesses [8].