Morgan Stanley Bullish on Smartphone and AI Opportunities, TDK Named Top Pick

Investing.com – Morgan Stanley upgraded the outlook for several Japanese electronic component manufacturers on Tuesday, naming TDK as a top pick due to expectations that high-end smartphone production will remain strong and demand for AI data centers will continue to grow.

The investment bank stated that North American high-end smartphone production is expected to remain steady beyond 2026. According to the report, TDK will benefit from increased sales of high-value-added products, including metal casing rechargeable batteries and silicon anode rechargeable batteries.

In the AI and data center sectors, TDK previously only supplied hard disk drive heads to Toshiba. The company resumed shipments to Western Digital or Seagate Technology in January, and Morgan Stanley expects it to resume shipments to the other company by the fiscal year ending March 2027.

The bank also expects TDK to start shipping rechargeable batteries for AI and data center backup battery packs in fiscal 2027, with sales expected to grow significantly from fiscal 2028. Morgan Stanley stated that it expects TDK’s profits to surpass market consensus expectations.

Morgan Stanley upgraded Alps Alpine to an overweight rating, citing the company’s supply of camera actuators for U.S. high-end smartphones. The bank expects new camera features in 2026 models to increase the value of camera actuators, with profits in fiscal 2027 expected to exceed consensus forecasts.

The firm maintained its overweight rating on Murata Manufacturing, forecasting further profit growth from its core multilayer ceramic capacitor products. Morgan Stanley expects that starting from fiscal 2028, non-MLCC product groups will make significant contributions, including increased share of RF modules in North American smartphones, expansion of rechargeable batteries for AI and data center backup battery packs, and DC-DC power modules for AI data centers.

Morgan Stanley maintained its underweight ratings for Ibiden and Hamamatsu Photonics. Although Ibiden supplies a major share of AI server flip-chip package substrates to Nvidia, the company has lowered its profit guidance for fiscal 2026. For fiscal 2027, Morgan Stanley expressed doubts about whether procurement of glass fabric and copper-clad laminate could increase significantly, predicting profits below market consensus.

Hamamatsu Photonics has potential in quantum computing applications using laser technology and wafer processing, but Morgan Stanley expects profits to decline year-over-year for the fourth consecutive year in the fiscal year ending September 2026.

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