As the market continues to debate the sustainability of AI capital expenditures, Morgan Stanley Asia recently completed a survey of the Asian semiconductor supply chain, revealing the supply-demand limits driven by AI.
According to the Wind Trading Desk, Morgan Stanley has released a report based on its on-the-ground research in Asia, indicating that NVIDIA's market dominance is more solid than the market perceives. The biggest concern for customers over the next 12 months is &#34;not being able to obtain enough NVIDIA products,&#34; especially the Vera Rubin chips.
Additionally, the shortage of memory chips has reached &#34;one of the worst levels in 30 years,&#34; with a buying spree from cloud computing buyers leading to product shortages for PC and server OEMs.
Furthermore, Morgan Stanley stated that the supply chain expectations for the TPU designed by Broadcom for Google have been raised, but this growth comes at the expense of orders from other customers.
Based on this research, Morgan Stanley has raised the target prices and earnings expectations for NVIDIA and Broadcom, believing that the intensity of AI is testing the limits of the entire semiconductor ecosystem, with supply tight across front-end wafers, back-end packaging, and memory.
<h2>NVIDIA's Moat: Customers' &#34;Procurement Anxiety&#34;</h2>
Despite the market being filled with narratives about the rise of competitors, the reality of the supply chain is harsh. Morgan Stanley's research shows that NVIDIA's market dominance remains unshaken, while customer panic over supply shortages is intensifying. Morgan Stanley stated:
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In the next 12 months, the biggest anxiety for customers is whether they can procure enough NVIDIA products... Although everyone wants alternatives, and some alternatives are economically viable for specific applications, our industry contacts have assured us that for most application scenarios, NVIDIA still offers the best economic benefits.
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The data comparison is highly persuasive: NVIDIA just completed a quarterly revenue of $51 billion for its data center, approximately 14 times that of Google's TPU revenue, with a quarter-on-quarter increase of $10 billion, which itself is equivalent to three times TPU revenue. Even in workloads where &#34;TPUs dominate,&#34; NVIDIA still contributes a significant share, likely accounting for a large portion of data center revenue.
Based on supply chain validation, Morgan Stanley raised NVIDIA's target price from $235 to $250, while also raising earnings expectations. Although the valuation multiple was lowered from 27 times to about 26 times CY27 earnings (still higher than the semiconductor industry but lower than large AI peer Broadcom), the new target price is based on a revised MW earnings per share expectation of $9.57 (up from the previous $8.66).
<h2>Under Currents in Custom Chips: Broadcom Benefits, Meta Adjusts Strategy</h2>
Outside of NVIDIA, the custom chip (ASIC) market is not calm. The research shows that the supply chain expectations for Google's Tensor Processing Unit (TPU)—designed and sold by Broadcom—are being raised, a positive signal that emerged even before Gemini received acclaim. Morgan Stanley has heard from analog companies, memory companies, and ODM partners about the upward revision of TPU orders, with more significant upward revisions concentrated in CY27 and beyond.
However, Morgan Stanley issued an important warning: Some of the TPU growth is actually replacing expected orders from Broadcom's other ASIC customers. Specifically, Meta's MTIA chip mass production plan (originally scheduled for 2H26) has been delayed, partially replaced by Meta's use of TPUs
The industry believes that Meta and OpenAI's use of TPU is partly to familiarize themselves with ASIC usage, ultimately migrating to an internal ASIC solution.
The more significant long-term risk is that Google is collaborating with MediaTek to develop its own TPU variant, which could pose a threat to Broadcom. Research shows that Google is pushing to mass-produce a chip next year that still has functional issues to resolve, indicating the urgency of seeking alternatives.
Based on these findings, Morgan Stanley raised Broadcom's target price from $409 to $443, maintaining a 41x valuation multiple but incorporating higher expectations, based on CY27 MW earnings per share (including equity incentives) of $10.79. Morgan Stanley has raised Broadcom's FY2026 ASIC revenue forecast to $27.21 billion and FY2027 forecast to $59.475 billion, significantly higher than previous expectations.
<h2>Storage Chip Crisis: Shortage at the Most Severe Level in 30 Years</h2>
This is the most alarming part of the report. If the AI computing power shortage was expected, the comprehensive shortage of storage chips could become the biggest bottleneck in the market going forward.
Morgan Stanley's report shows:
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In the 30 years covering the storage cycle, we have never seen such a severe situation. While the largest cloud computing buyers are in a gold rush-like purchasing frenzy, the rest of the world seems to be facing product scarcity... Once existing inventory is depleted, there appears to be no capability to replenish at any price.
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Morgan Stanley stated that when the largest cloud computing buyers are in a buying frenzy, other regions of the world seem to be in a product famine. All markets may experience production line shutdowns, indicating that this is a real supply tightness rather than artificially created. The tightness in DDR4 continues to exist and will begin to affect the automotive market in the coming months.
For NAND, the enterprise market (especially QLC-based products) feels the impact most strongly, but there is also varying degrees of tightness in the consumer market. In terms of high bandwidth memory (HBM), although there is downward price pressure on long-term contract renewals in Q1, profits remain high. The current dynamic is that DDR5 profits are pulling HBM upwards, rather than the opposite. For HBM4, Morgan Stanley believes Micron will participate in NVIDIA's supply chain, although the initial share is relatively small

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Morgan Stanley stated that the intensity of AI is testing the limits of the entire semiconductor ecosystem, with supply tightness being faced from front-end wafers to back-end packaging and memory. Research shows that the biggest anxiety for customers in the next 12 months is "inability to obtain enough NVIDIA products," especially the Vera Rubin chip; the expected increase in TPUs designed by Broadcom for Google is primarily due to substitution of orders from other customers, while the shortage of memory chips has reached "one of the most severe levels in 30 years."

- Morgan Stanley's recent research on the Asian semiconductor industry reveals critical supply and demand issues driven by AI.  
- The report highlights Nvidia's strong market position, with clients expressing significant anxiety over product shortages, particularly for the Vera Rubin chip, while the storage chip shortage reaches a 30-year high.  
- Additionally, the report indicates that Broadcom's supply chain for Google's TPU is expected to rise, although this growth may come at the expense of other clients, signaling potential long-term risks in the custom chip market.

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Morgan Stanley Asia Research: The biggest anxiety for clients is the inability to purchase enough NVIDIA chips, and the storage shortage is "one of the most severe in 30 years."