Global investment bank Morgan Stanley has abruptly replaced Samsung Electronics (005930.KS) with Samsung Electro-Mechanics (009150.KS) as its top pick in South Korea’s technology sector. Citing surging component demand driven by expanding AI data center investments, the bank views Samsung Electro-Mechanics’ recent share price—which has halved from its peak—as a bargain buying opportunity.
According to the financial investment industry on the 12th, Morgan Stanley maintained its “Overweight” rating on Samsung Electro-Mechanics in a recent report while newly designating it a “Top Pick,” signifying the most favored stock within its coverage. This shifts Morgan Stanley’s top pick position among South Korean tech stocks from Samsung Electronics to Samsung Electro-Mechanics.
The target price was also raised. Under its base-case scenario, the target was lifted from ₩2.56 million to ₩2.62 million (approximately $1,849). Given that Samsung Electro-Mechanics’ share price hovered in the ₩1.2 million range (approximately $847) as of the 12th, this implies more than double the upside potential. Morgan Stanley left room for ₩3 million (approximately $2,117) under a bull-case scenario, while lowering its bear-case target to ₩1.35 million (approximately $953) to reflect recently heightened share price volatility.
“Even under the most conservative bear-case scenario, there is still upside, and applying the base-case scenario suggests the stock could roughly double,” Morgan Stanley analyzed.
The core rationale behind this optimistic outlook is structural demand growth for multilayer ceramic capacitors (MLCCs) and Ajinomoto build-up film (ABF) substrates driven by expanding AI data center investments. While both products require significant lead times for supply expansion, demand is already accelerating rapidly, a dynamic Morgan Stanley expects will prolong the supply-demand imbalance.
Price increases are already materializing in the MLCC market. Japan’s Murata led with price hikes focused on AI server and high-end automotive products, followed by China’s Taiyo Yuden, which extended increases across all product lines including consumer applications. Taiwan’s Yageo and Walsin subsequently followed suit, while Samsung Electro-Mechanics has temporarily suspended providing distributor quotes ahead of its own price adjustments.
Supply-side bottlenecks are also expected to persist for some time. Murata’s additional high-end capacity, Samsung Electro-Mechanics’ Philippines expansion, and Taiyo Yuden’s South Korea server-grade capacity are all slated to begin meaningful operations only after 2027. Morgan Stanley noted, “Manufacturers also tend to limit annual output growth to around 10-15% and only commit to additional investment after confirming sustained price increases, which will prolong the supply shortage.”
The outlook for the ABF substrate market is equally bright. According to Morgan Stanley’s proprietary supply-demand model updated in July, ABF substrate supply is projected to fall short by 25% through 2030, an upward revision from the previous estimate of approximately 22%.
Meanwhile, the gap between current share prices and brokerage target prices for Samsung Electro-Mechanics and other major South Korean semiconductor stocks continues to widen. According to financial data provider FnGuide, as of the closing price on the 11th, the average target price upside for the top 10 KOSPI stocks by market capitalization, excluding preferred shares, reached 70.7%.
The divergence was particularly pronounced among semiconductor-related names. SK Hynix (000660.KS) had an average target price of ₩3,291,500 (approximately $2,323), 131.0% above that day’s closing price of ₩1,425,000 (approximately $1,006). SK Square (402340.KS) showed 122.2% upside with a target of ₩2.1 million (approximately $1,482), while Samsung Electronics reached 103.2% at ₩486,600 (approximately $343). Samsung Electro-Mechanics, despite rebounding 10.51% this month, still showed 82.9% upside relative to its target price of ₩2,308,800 (approximately $1,630).
These elevated expectations are anchored in projections of sharp earnings growth. Samsung Electronics’ third-quarter operating profit consensus stands at ₩114.87 trillion (approximately $81.1 billion), an 844.2% year-on-year increase. SK Hynix is expected to post ₩78.42 trillion (approximately $55.4 billion), up 588.9%, while Samsung Electro-Mechanics is forecast at ₩605.6 billion (approximately $427.4 million), up 132.7%. Analysts believe expanding AI server investments, rising high-bandwidth memory (HBM) prices, and memory supply constraints will support mid- to long-term earnings.
However, the wide dispersion in target prices also underscores persistent uncertainty surrounding future earnings and share price trajectories. Samsung Electronics’ target prices range from a low of ₩300,000 (approximately $212) to a high of ₩650,000 (approximately $459) across brokerages, while SK Hynix spans from ₩1.48 million (approximately $1,045) to ₩4.7 million (approximately $3,317). Fair value estimates vary significantly depending on memory price and supply outlooks, the earnings year applied, and valuation multiples.
In the near term, the gap between target prices and current share prices is unlikely to narrow quickly. The unwinding of leveraged and margin positions concentrated in large-cap semiconductor stocks continues, while each share price rebound is likely to trigger selling pressure from loss-reduction and profit-taking activity. Market leadership is also dispersing as funds exiting semiconductors rotate into sectors with improving earnings, including defense, shipbuilding, construction, and biotech.
The medium- to long-term direction will likely hinge on U.S. technology firms’ investment plans and semiconductor price trends. If AI investment continues and 2027 earnings forecasts hold, the gap could narrow as current share prices catch up to earnings projections. Conversely, if customer capital expenditure slows or memory price forecasts are revised downward, the possibility that brokerages will lower their target prices to align with current share prices cannot be ruled out.