[Post HBM Start]② Morgan Stanley and BNP Paribas Agree "Concerns Over HBM 'Oversupply'"

Recently, the semiconductor stock market has been unsettled. The stock price of SK Hynix has dropped significantly due to the impact of a recent report titled "Winter Looms" released by the prominent U.S. investment bank Morgan Stanley. SK Hynix is struggling to lift its stock price back up after it plunged nearly 7% to the 150,000 KRW range on the 19th.

Morgan Stanley Photo by AP Yonhap News

The Morgan Stanley report contains a bleak outlook for SK Hynix. The target price was cut by about 54%, from 260,000 KRW per share to 120,000 KRW, and the investment rating was downgraded two levels from "overweight" to "underweight." The main reason for the negative view is the "performance decline due to oversupply of High Bandwidth Memory (HBM)." The report summary commented, "The good (HBM) supply situation is the biggest concern as it is expected to exceed demand by 2025." At the end of the report, it asserted objectivity by stating, "We have faithfully reflected the opinions of industry insiders and experts in the memory sector."

This evaluation is completely different from just four months ago. In May, Morgan Stanley praised SK Hynix's stock price, saying there was "significant upside potential," appreciating its ability to maintain stable HBM supply. Although SK Hynix was removed from the recommended list in the July report, the analysis and criticism were more persistent than before. The July report contained a general analysis that if former U.S. President Donald Trump were elected in the November presidential election, it would negatively affect SK Hynix's business. However, this month's report presents a contrasting view.

Within the domestic industry, there is a strong voice dismissing the report as a "witch hunt" against SK Hynix and a "check report" aimed at supporting domestic companies like Micron and Intel. However, some argue that the possibility of HBM oversupply should be reconsidered and prepared for. There is also an analysis that Morgan Stanley pointed out a problem that SK Hynix, which has focused solely on the HBM market, had to face eventually, calling it the company's "Achilles' heel."

Production Competition Surpassing Demand

Although attention has been focused on Morgan Stanley, concerns about HBM oversupply have recently been raised elsewhere as well. On the 13th (local time), the foreign investment bank BNP Paribas downgraded its recommendation on U.S. company Micron Technology by two levels from "buy (outperform)" to "sell (underperform)." The target price was also cut by 52%, from $140 to $67 per share. Like Morgan Stanley, BNP Paribas pointed out concerns about "HBM oversupply." The bank emphasized in its report that the combined HBM production capacity of SK Hynix, Samsung Electronics, and Micron, which divide the HBM market into three, currently amounts to 315,000 wafers per month based on wafer input, expected to rise to 400,000 wafers next year. This is more than double the estimated 168,000 wafers that customers will need next year. The analysis suggests that excessive production competition will significantly increase supply, surpassing demand, causing an imbalance in the HBM market. If HBM supply greatly exceeds demand as this analysis predicts, prices will fall according to market principles, and the earnings of companies producing HBM will deteriorate.

BNP Paribas [Image source=Reuters Yonhap News]

"Could Become Like Water or Oil"

Those who refute concerns about HBM oversupply argue that HBM is produced only in the quantities ordered, so oversupply is unlikely. However, recent corporate trends make it difficult to be confident in this claim. Major companies like SK Hynix and Samsung Electronics have significantly expanded their HBM production infrastructure and are already tightening the competition for the sixth-generation HBM, 'HBM4.' Key executives have effectively acknowledged this in official settings. Companies cannot afford to idle their expanded production facilities and workforce. Since it is uncertain when contracts will be signed and when to promptly supply HBM to customers, production may gradually increase even without orders. For this reason, insiders say, "HBM might become like water or oil in the future." This means HBM will become a common consumable component embedded in chips rather than a critical part purchased with great effort for artificial intelligence (AI). Just as consumers find it difficult to perceive quality differences in bottled water bought at convenience stores or gasoline purchased at gas stations regardless of the source, only price differences exist. Therefore, consumers do not travel far to buy bottled water or gasoline based on quality.

"Whether Oversupply Occurs Depends on Customers"

Experts believe it is highly unlikely that companies will intentionally reduce HBM supply. Due to fierce competition while focusing on developing the next generation of HBM, supply is expected to continue increasing. According to forecasts, whether actual oversupply occurs depends on demand. The future market landscape will largely be determined by how big tech companies that purchase and use HBM act. Semiconductor companies are concentrating their capabilities on developing technologies that process AI computations without using HBM. Kyunghee Kwon, a research fellow at the Korea Institute for Industrial Economics & Trade, commented on the Morgan Stanley report, saying, "There is a view that the large-scale facility investments triggered by generative AI have reached near saturation," adding, "It seems Morgan Stanley reflected this perspective."