Morgan Stanley: Storage stocks appear to have the lowest valuations at the cycle peak, but are actually in the most dangerous situation.

Morgan Stanley’s latest report notes that Samsung and SK Hynix currently have a forward price-to-earnings (P/E) ratio of just 3 to 4 times—seemingly cheap but potentially masking a valuation trap at the cycle’s peak. Historically, storage stocks have tended to top out ahead of earnings peaks: leading by roughly 4 months in 2008 and 2012, and about 8 months in 2018. While the AI-fueled storage supercycle remains intact, tight supply-demand, rising prices, and improving earnings still offer support. But with sharp stock price gains and concentrated upward revisions to earnings forecasts, bullish expectations are already fully priced in, leaving further upside under pressure. Morgan Stanley argues that the stronger the storage sector’s fundamentals, the more easily cycle-top risks are underestimated—high growth may not translate to sustained excess returns. The report warns that high profits will eventually draw new production capacity, with supply set to gradually hit the market from the second half of 2027, potentially triggering a new cycle inflection point. Asian storage stocks have rallied roughly 9 times cumulatively since their September 2025 rally, with average consensus earnings per share (EPS) forecasts revised up by 432%. Samsung and SK Hynix’s low P/E ratios may be a classic trap for cyclical stocks near earnings peaks. To justify the upside implied by current share prices, DRAM contract prices would need to rise around 70% quarter-on-quarter—a tall order. Separately, evolving data center architectures could reshape industry chain benefit distribution: in NVIDIA’s NVL72, storage makes up ~29% of a single rack, falling to 19% when expanded to 8 interconnected racks, while network equipment’s share jumps from 10% to 20%—meaning storage makers may not proportionally benefit from AI infrastructure investment growth.