The AI agent wave is accelerating demand for CPUs, but Morgan Stanley believes that capturing this trend through memory stocks like Micron and SanDisk offers a more favorable risk-reward profile than direct investments in Intel or AMD.
According to the report, Morgan Stanley's semiconductor industry analysis from April 20th indicates that near-term challenges in Intel's server roadmap and uncertainties surrounding its foundry strategy, coupled with AMD's stock being primarily driven by GPU rather than CPU logic, complicate the investment thesis for direct long positions in CPU stocks.
The report further notes that memory stands as a direct beneficiary of accelerating CPU demand while simultaneously benefiting from multiple structural growth trends, including the explosion in HBM and enterprise solid-state drive (eSSD) demand.
Demand for data center memory from hyperscale cloud providers is expected to remain tight at least until the end of 2027, with the supply gap still in its early stages. Concurrently, long-term purchase agreements between memory suppliers and their customers are accelerating, promising substantial upfront cash inflows.
While long-term growth projections for CPUs are estimated at 30-40%, significantly above historical averages, they still fall short of market expectations for GPU growth. On the supply side, Intel faces significant capacity constraints. This combination of accelerating demand and supply constraints makes quantifying the overall trend more challenging.
Crucially, for both Intel and AMD, although the server business is central to their profit outlook, their stock valuations are not solely dependent on server CPUs. Intel's investment narrative leans more heavily on its foundry ambitions, while AMD's long-term story is centered on GPUs. This reality undermines the simplistic equation of buying CPU stocks during a CPU boom.
The rationale for raising Intel's price target hinges on increasing server average selling prices (ASP) and shipment growth. Intel's Data Center and AI (DCAI) division is forecast to generate approximately $21.8 billion in revenue by 2026, representing about 30% year-on-year growth, driven by a 14% increase in server unit shipments and a 20% ASP increase.
However, Intel is unlikely to recapture significant market share from AMD. Its next-generation server product, Diamond Rapids, is reported to have notable shortcomings based on direct industry feedback. In contrast, AMD's Venice platform is viewed as a clear and significant advancement, manufactured on TSMC's N2 process without supply constraints, undermining Intel's potential to gain share through its internal manufacturing.
Intel's PC business is also expected to face pressure, with forecasts predicting a 16% decline in desktop revenue and an 8% decline in laptop revenue for 2026, attributed to a shrinking DIY market due to rising GPU prices and continued market share gains by AMD. Furthermore, skepticism remains regarding the long-term prospects of Intel's foundry business, with the possibility of achieving positive discounted cash flow seen as "still distant," despite some interest in the Terafab partnership.
AMD demonstrates stronger product competitiveness in the server CPU market, positioning it as a greater beneficiary of the CPU upcycle, with expectations of continued share gains in the general-purpose CPU market, further solidified by the Venice platform.
However, the core dynamic for AMD's current stock price is that the vast majority of its 2030 revenue target is projected to come from GPUs. Therefore, improvement in the GPU business is the more critical variable for driving the stock price. This was evidenced last quarter when strong server performance was overshadowed by market focus on GPUs, leading to a significant stock correction.
Regarding gross margins, management has expressed caution beyond the first quarter, partly because AMD may need to allocate some CPUs to promote GPU ecosystem adoption, potentially creating targeted discount pressures and limiting overall profitability improvement.
Memory stocks like Micron and SanDisk are highlighted as the preferred vehicles for capitalizing on CPU and AI demand trends, primarily due to their significant valuation advantages. Based on 2026 estimates, MU and SNDK are trading at approximately 5.7x and 11.5x P/E ratios, respectively, indicating clear upside potential.
On the demand side, hyperscale cloud providers are expected to face unmet data center memory needs until at least 2027, with the supply-demand gap in a "very early stage." Occasional softness in spot prices (e.g., for aftermarket retail modules) is considered unrelated to the structural shortage in the data center segment and is not seen as indicative of the broader trend.
Regarding long-term agreements, clear evidence is anticipated this year, in the form of substantial cash inflows and deferred revenue, demonstrating that prepayment agreements are being implemented.
Morgan Stanley maintains Overweight ratings on Micron with a $520 price target and on SanDisk with a $690 price target. While acknowledging that AI agents will drive accelerated CPU demand, the firm concludes that memory stocks offer the optimal risk-reward profile.
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