Morgan Stanley flags storage shift as DRAM beats NAND in 2026

The storage supercycle continues, but indiscriminate gains are ending as Morgan Stanley urges investors to favor DRAM over NAND and original manufacturers over module makers.

Morgan Stanley told clients the storage cycle remains favorable but the trade is no longer uniform, recommending DRAM over NAND and original manufacturers over module makers as consumer pricing peaks.

"AI-related NAND demand will grow 60% year-over-year in 2027, but the pricing dynamics have diverged sharply between server and consumer segments," Morgan Stanley analysts wrote in a July 2 global technology research note.

The bank's updated supply-demand model shows global NAND supply running at a 15% deficit in 2026 and a 9% deficit in 2027. AI demand is projected to rise from 18% of total NAND consumption in 2025 to 41% by 2027, reaching 609 exabytes. Enterprise SSD NAND prices rose 30% quarter-over-quarter in the third quarter, while consumer-grade NAND posted only slight gains. Module maker inventories have climbed, and distributors report elevated consumer memory stockpiles.

The divergence matters because the storage sector has been one of the best-performing corners of the semiconductor market — SanDisk surged 858% in the first half of 2026 alone. If consumer pricing has peaked while module makers face margin compression, the next leg of the cycle will reward selectivity over broad exposure.

AI Demand Diverges From Consumer Weakness

The bank's model projects total NAND demand reaching 1,484 exabytes in 2027, up from 1,111 exabytes in 2025, while supply is expected to reach 1,347 exabytes — leaving a 9% deficit. But the shortage is concentrated in server and AI products. Consumer NAND demand faces headwinds: smartphone and PC customers have begun cutting orders after price increases in the second quarter, and module makers that built low-cost inventory during the cycle trough are now watching those buffers deplete.

Long-term agreements are reshaping the pricing mechanism. These contracts typically include both price floors and ceilings, protecting original manufacturers' margins while capping further upside. Customers have shown greater willingness to pay premium prices for DRAM supply commitments, while NAND price increases have met resistance from cost-sensitive consumer electronics buyers.

Why DRAM Wins Over NAND

Morgan Stanley cited four reasons for preferring DRAM. First, DRAM long-term agreements carry more favorable terms, with customers more willing to pay up for supply guarantees. Second, demand visibility is higher, driven by AI computing and server refresh cycles. Third, supply discipline is tighter — extreme ultraviolet lithography constraints limit how fast DRAM foundries can add capacity. Fourth, the potential ramp of HBM4E, the next generation of high-bandwidth memory, could crowd out existing DRAM production and further tighten supply.

Within NAND, the bank favors original manufacturers over module makers. Traditional cycles rewarded module makers that stockpiled cheap inventory at the trough and released it during upswings. But with AI-driven shortages potentially lasting three to five years under long-term agreements, that model faces structural pressure. Original manufacturers control supply allocation and are directing more output to hyperscale cloud customers, limiting module makers' access to enterprise SSD and AI storage markets. Asian SSD module makers derive only 10% to 20% of revenue from enterprise SSDs, leaving them exposed to consumer weakness.

The report flags three risks: a slowdown in AI capital spending, which would be the biggest macro threat; continued consumer weakness that could erode the NAND broad-based pricing narrative; and a potential supply glut in 2028 if new wafer capacity comes online faster than demand. Conversely, if new AI inference SSD products enter mass production — consuming roughly three times the capacity of standard SSDs — supply could tighten further. SanDisk, Micron Technology, Samsung Electronics and SK Hynix are the primary beneficiaries of the DRAM and NAND original manufacturer preference, while Asian module makers face the most structural risk.

This article is for informational purposes only and does not constitute investment advice.