Semiconductor earnings week: Demand is broadly strong, but its duration and profit realization face different tests
Morgan Stanley is upbeat on the near-term semiconductor cycle, but automotive restocking has yet to begin, the profit contribution from advanced packaging capacity expansion is some way off, and strength in servers and memory faces different constraints.
Original source：Morgan Stanley & Co. LLCFirst published on Unhidea：Original source date：
Key takeaway
Morgan Stanley expects a strong semiconductor earnings season overall, but whether each segment can sustain growth depends on differing developments in automotive customer orders, capacity bottlenecks and end demand.
How far along is the automotive chip recovery?
Morgan Stanley’s third-quarter 2026 distributor survey shows that the share of respondents expecting automotive demand to be below seasonal levels fell from 15% in the previous quarter to 11%, although industrial demand remains ahead in the recovery. Inventories at automakers and suppliers have fallen below historical medians, while Western tier-one suppliers still tend to order as needed.
Longer lead times could prompt customers to order earlier: 63% of survey respondents reported longer lead times, up from 53% in the previous quarter. The bank believes this could improve NXP’s visibility into orders for 2027; if customers subsequently rebuild inventories, that could also bring additional demand beyond growth in chip content per vehicle.
Morgan Stanley forecasts NXP’s revenue for the quarter ending in December at 3.818 billion dollars, up 1.5% quarter over quarter, below the market consensus of 3.864 billion dollars and 2.7% growth; guidance could have upside if demand continues to improve. The bank maintains its Overweight rating.
Why is Allegro growing ahead of automotive restocking?
Growth in Allegro’s automotive business is driven mainly by increased product content. Orders in the quarter ending in June rose 30% year over year and by a high-single-digit percentage quarter over quarter, but some short-lead-time orders could not be delivered because of back-end capacity constraints. The bank is focused on whether capacity expansion can improve shipments in the quarter ending in December.
The data center business grew 32% quarter over quarter in the quarter ending in June, accounting for 17% of company revenue. Within that business, current sensor sales rose 66% quarter over quarter and accounted for 22% of data center sales. Management expects the business to more than double in fiscal 2027.
Morgan Stanley forecasts revenue of 285 million dollars for the quarter ending in December, about 3% above market consensus, and maintains its Overweight rating. It is also watching 2027 price negotiations with automotive customers, as the company’s average selling price declined in 2026.
When will Amkor’s advanced packaging orders translate into profits?
Amkor benefited from capacity utilization and a favorable product mix in the second quarter. Its third-quarter gross margin guidance of 18.5%–19.5% is above its earlier expectations for the second half. Amid tight back-end capacity, Morgan Stanley is watching whether pricing can drive further gross margin improvement.
Following Nvidia’s additional 1.3 billion-dollar agreement, the two companies’ total commitments reached 3 billion dollars, and they plan to increase interposer wafer capacity in South Korea by more than 300% by the end of 2028. Amkor increased its Arizona investment to 12 billion dollars, but management expects the project to reduce operating margin by 1–2 percentage points starting in 2027 and to become accretive to profit only at the end of 2029. The bank maintains its Equal-weight rating.
Can Intel’s server strength offset PC weakness?
AI agents’ use of CPUs is driving demand, and Intel’s supply growth is constrained; server processors remain in short supply. The company is increasing supply and raising prices by double digits for equivalent products sold to some transactional customers. Morgan Stanley expects its data center business to grow 46% in 2026 and 27% in 2027, respectively, but buy-side expectations are already substantially above both the bank’s forecast and market consensus.
The PC trend is the opposite: contract manufacturers’ PC assembly volumes fell 17% quarter over quarter in the third quarter, compared with a typical seasonal increase of 5%. The bank expects PC shipments to fall 11% year over year in 2027. Intel’s client business accounted for 55% of its second-quarter revenue. If that business’s revenue falls by close to the decline in PC shipments in 2027, rather than remaining roughly flat as the market expects, revenue would be 3 billion–4 billion dollars below consensus.
In foundry, the 14A process is scheduled for risk production in 2028 and mass production in 2029. The bank is watching whether tight CPU supply will limit capacity available to major customers and maintains its Equal-weight rating because of uncertainty about server competitiveness and the foundry outlook.
Can SanDisk fully benefit from rising memory prices?
Morgan Stanley believes data center storage demand is relatively durable: lower central memory configurations per rack increase demand for high-speed local storage caches; tight hard-drive supply also makes customers less inclined to switch from enterprise solid-state drives to hard drives. Consumer NAND demand is relatively weak.
The bank expects industry average selling prices to rise 15%–20% in the fourth quarter, but SanDisk’s increase may be smaller because its realized selling prices in the third quarter were already above peers’ and long-term agreements will also temper the increase. The bank expects the company’s third-quarter results to significantly beat expectations and fourth-quarter guidance to be broadly in line, so it does not view this earnings report as a catalyst and maintains its Overweight rating.
