Summary of Key Points from Morgan Stanley Research - Global Tech Outlook 2026 Industry Overview - **Focus**: The report primarily discusses the technology sector, with a specific emphasis on semiconductors and hardware within the Asia Pacific and European markets [20][40]. Core Insights and Arguments - **Semiconductor Demand**: The demand for AI hardware, particularly Nvidia GPU server racks, is expected to double year-over-year in 2026, with data center-related revenue projected to exceed 40% of overall revenue in 2025 and at least 50% in 2026 [20][21]. - **Substrate Demand**: Demand for ABF substrates has bottomed, driven by AI GPU/Accelerators, while BT substrates benefit from a memory super-cycle and rising raw material prices, leading to upward revisions in demand volumes and average selling prices (ASPs) [20][21]. - **Smartphone Market**: The smartphone industry is anticipated to face component cost increases in 2026, putting downward pressure on margins, particularly for mid-to-low-end products. High-end products are expected to perform better [20][21]. - **PC OEMs/ODMs**: Margin headwinds are expected for PC OEMs/ODMs due to rising memory prices, leading to multiple quarters of margin compression [20][21]. - **TV Panel Pricing**: TV panel prices are showing signs of bottoming out, but rising memory costs may pressure pricing in the near term [20][21]. Preferred and Least Preferred Companies - **Most Preferred**: - **AI Hardware**: Wiwynn, Accton, Kingslide, BizLink, Delta, Wistron - **Substrates**: Unimicron, SEMCO - **MLCC**: SEMCO - **Smartphones**: Xiaomi - **Display/TV**: BOE - **PC OEMs**: Lenovo [20][21]. - **Least Preferred**: - **AI Hardware**: Giga-Byte - **Substrates**: NYPCB - **Smartphones**: Mid-to-low-end products - **Display/TV**: Sanan - **PC OEMs**: Acer [20][21]. Market Dynamics - **DRAM Pricing**: DRAM pricing is expected to move higher into the first half of 2026, with inventory levels normalizing [27][30]. - **Automotive Semiconductors**: The automotive semiconductor market is experiencing a decline, with significant de-stocking challenges, but there are long-term tailwinds in data centers and grid optimization [50][53]. Company-Specific Insights - **ASML**: Positive momentum for lithography demand is expected, with strong DRAM spending and advanced logic speed. ASML is rated as a top pick with a price target of €1,000 [41][42]. - **ASM International**: Expected to benefit from leading-edge logic and advanced DRAM, with a price target of €625 [44]. - **Besi**: Anticipated strong growth across its portfolio, driven by AI [46]. - **Infineon**: Facing near-term de-stocking challenges but expected to benefit from long-term data center spending [53]. Additional Considerations - **Market Sentiment**: Investors are advised to monitor the cyclical and secular drivers affecting the semiconductor market, particularly in light of the ongoing AI infrastructure roll-out [53]. - **Valuation Methodology**: The report includes various price targets and valuation scenarios for the companies discussed, indicating a range of potential outcomes based on market conditions [41][44][46][53]. This summary encapsulates the critical insights and projections from the Morgan Stanley Research report, providing a comprehensive overview of the current state and future outlook of the technology sector, particularly in semiconductors and hardware.