Morgan Stanley Research Report Analysis: North American Semiconductor Supply Is Tightening, But Large-Scale Restocking Has Not Yet Started
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Morgan Stanley Research Report Analysis: North American Semiconductor Supply Is Tightening, But Large-Scale Restocking Has Not Yet Started
The industry overall has not yet reached the stage of inventory replenishment, but the supply-demand relationship in three segments—analog chips, computing power networks, and memory chips—has already tightened beforehand.
Navigating Web3 tides with focused insightsWritten by: Rita
TechFlow Insight
Morgan Stanley's semiconductor inventory tracking report released on July 1 clarifies the current state of the North American semiconductor supply chain: inventory in Q1 2026 increased by only 9 days QoQ, whereas a normal Q1 sees an increase of 19 days. Distributors are actively destocking, chipmakers are restraining production expansion, clients are overall stable, and supply is indeed tightening.
However, large-scale restocking has not yet arrived. Inventory across the entire chain remains 33 days higher than the historical median. Counting from the inventory peak in 2023, the industry spent nearly two years pressing inventory down from over 100 days, but these last 33 days prove immovable.
The core judgment of the report points to a divergent situation. The industry as a whole is not yet at the stage of restocking, but the supply-demand relationship in three segments—analog chips, computing power networks, and memory chips—has tightened ahead of others. Morgan Stanley provided a clear list of targets: ADI, NXP, NVDA, AVGO, CRDO, MU, SNDK, plus equipment-side MKSI, KLAC, LRCX, ONTO.
Inventory Accumulated 10 Days Less Than Normal, But the Direction Is Right
Total supply chain inventory in Q1 increased by 9 days QoQ, while the historical average for the same period is an increase of 19 days. The 10-day lesser increase was squeezed out by the combined effort of three segments. The direction is right, but the entire chain remains 33 days higher than the historical median, equivalent to the whole industry holding over a month's worth of extra goods.
It took the industry nearly two years to press inventory down from over 100 days to 33 days. The last 33 days are the dividing line for pricing power; one more month of inventory gives clients one more month of room to pressure prices. Early destocking relied on industry consensus, with everyone synchronously cutting orders, reducing production, and controlling shipments. These last 33 days require demand cooperation to digest, and demand has not yet picked up.
Distributors Are Destocking Against the Trend
Among the three segments, the only one to achieve a QoQ decline in DOI during Q1, a traditional inventory accumulation season, is distributors.
Distributor DOI dropped to 61 days, down 2 days QoQ, while the historical average for the same period is an increase of 4 days. WPG inventory increased 18%, cost increased 21%; Avnet inventory increased 3%, cost increased 13%. Revenue growth exceeded inventory growth, and goods are circulating normally. The absolute inventory amounts of all three distributors are rising, but DOI is moving down; this combination indicates business is being done and goods are flowing, not idling in warehouses. Distributors are the healthiest link in the entire supply chain.
Chipmakers Are Already Divided Into Two Worlds
Chipmaker DOI increased by 2 days to 114 days, while the historical average for the same period is an increase of 5 days. On the surface, it appears below seasonal levels, but breaking it down reveals two forces pulling in opposite directions.
Smartphones increased by 21 days, foundries increased by 8 days; these are manufacturers on the AI computing power chain actively stocking up, with demand expectations still high. Analog chips decreased by 2 days, semiconductor equipment decreased by 6 days; these two fields have completed supply-side clearing ahead of others.
Within the same industry, some are stocking up for growth, while others are contracting supply for pricing power. Only when these two stories are put together does the true state of chipmakers emerge.
Client Demand Signals Have Not Yet Appeared
Client DOI increased by 9 days, while the historical average for the same period is an increase of 8 days, appearing basically flat on the surface. However, communication equipment manufacturers surged by 17 days, ODMs increased by 16 days, and automotive suppliers decreased by 1 day.
Communications is 23 days higher than the historical median, the most dangerous segment within the client link. ODMs are 21 days higher, also at a high level. Automotive suppliers have instead returned to near the historical median.
On the same industrial chain, some are desperately stocking up, while others are purchasing based on demand. The lack of a unified demand signal indicates that the terminal market has not yet reached a consensus.
Three Segments Can Survive Without Waiting for Restocking
Morgan Stanley's stock selection framework is clear: find segments where the supply-demand relationship has already tightened, without waiting for a comprehensive demand recovery.
The first is analog chips. ADI and NXP have declining inventory and returning pricing power. The Analog/MCU segment DOI decreased by 2 days QoQ, one of the few segments with declining inventory among semiconductor companies. Analog chips have long product life cycles, dispersed clients, and stronger price rigidity; once the supply side tightens, profit elasticity is greater than other digital chips.
The second is computing power networks. NVDA, AVGO, CRDO; AI demand is digesting inventory. Although the Computing/Mobile segment DOI remains 12 days higher than the historical median, the structural growth of AI computing power is eating up this inventory. Morgan Stanley believes demand on this line is not cyclical; even if overall industry demand weakens, shipments of AI-related chips will not decline proportionally.
The third is memory chips. MU and SNDK are the only segment where inventory did not expand YoY; inventory was flat QoQ, and the absolute amount decreased by only 1% YoY. Memory is the most volatile category in semiconductors; when other segments are still digesting inventory, memory inventory has stopped rising, which is a signal of the cycle bottom.
The equipment side was also highlighted. MKSI, KLAC, LRCX, ONTO; DOI decreased by 6 days QoQ, and the inventory decline outperformed peers. Equipment is a leading indicator of capacity expansion; Morgan Stanley singled out this segment, indicating that supply-side improvements have transmitted upstream.
There Are No Small Companies on Morgan Stanley's Recommendation List
One detail on this list is more important than all the data: there is not a single small or medium-sized semiconductor enterprise.
While Morgan Stanley says restocking has not yet arrived, it is promoting stocks that benefit from restocking. The only explanation is that these companies do not need to wait for restocking. Analog chips and memory have completed supply-side clearing, and AI computing power has structural demand as a bottom line. The inventory digestion speed, financing capabilities, and client negotiation status of small and medium-sized companies cannot support a turnaround battle in this cycle.
Previously, after inventory bottomed out, small and medium-sized companies had the greatest elasticity. But now capital costs, client concentration, and technical thresholds are all different. Morgan Stanley's silence is itself a judgment.
TechFlow Perspective
The most piercing question in this report is hidden in the recommendation list. Morgan Stanley is betting that the supply side can complete clearing on its own without demand assistance. This logic has worked for analog chips and memory, but when applied to the AI computing power chain, inventory data does not support it.
Computing/Mobile DOI is 12 days higher than the historical median, and Communications is 23 days higher. The narrative of AI digesting inventory is currently logical deduction, not verified by inventory data. If AI capex marginally slows in the second half of the year, the inventory risk of this chain will be repriced. Morgan Stanley is very decisive in promoting NVDA and AVGO, but the data foundation supporting this recommendation is much thinner than the other two lines.
Another question the report avoids is the position of small and medium-sized companies in this cycle. If Morgan Stanley does not promote them, it means they are not optimistic; not being optimistic means believing the structure of this cycle has changed. If this judgment is correct, then semiconductor investment enters the "large market cap track" era from now on, and the cyclical elasticity logic for small and medium-sized stocks needs to be rewritten.
Disclaimer
This article is a compilation and interpretation by TechFlow Research of third-party brokerage research reports. Ratings, target prices, earnings forecasts, and related judgments cited in the text are the views of the brokerage analysts, represent only the position of their affiliated institutions, do not represent the views of TechFlow Research, and do not constitute any investment advice.
The market carries risks; decisions must be independent. This article should not be used as a basis for buying or selling any securities.
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