Morgan Stanley: Electronic Components: Expanding Demand for High-Value-Added AI/DC Products and Sustainability of Strong Earnings Are Key Considerations
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Key Views
The report favors firms benefiting from expanding AI and data center (DC) demand. Murata Manufacturing (6981, Overweight, TP: JPY 12,500) is the top pick, driven by high-value-added MLCC margin expansion and improved capacity utilization. TDK (6762, Overweight, TP: JPY 4,900) sees growth in rechargeable batteries and HDD products. Hirose Electric (6806, Overweight, TP: JPY 36,600) and NGK Spark Plug (5334, Overweight, TP: JPY 12,600) are also favored. Conversely, Taiyo Yuden (6976, Underweight, TP: JPY 12,500) faces limited upside from MLCC miniaturization. The industry's average P/E ratio (F26e–F30e) is projected to decline from 33.0x to 15.9x, reflecting anticipated earnings growth. Notably, Ibiden (4062, Underweight, TP: JPY 13,000) is expected to retain nearly 100% market share in FC packages for NVIDIA.
Outlook
Significantly increased capital expenditure by hyperscalers will bolster AI/DC component demand. Key risks include smartphone price compression, slowing technological innovation, and FX volatility (assumed USD/JPY of 155.0 for F26e).
Recommended Securities
Overweight: Murata Manufacturing, TDK, Hirose Electric, NGK Spark Plug, and Alps Alpine (6770, TP: JPY 3,000). Underweight: Taiyo Yuden and Ibiden.