China semiconductors: Morgan Stanley upgrades industry view on AI strength

Investing.com-- Morgan Stanley upgraded its industry rating on the greater China semiconductor sector, stating that it was likely to benefit from robust artificial intelligence demand despite increased U.S. trade headwinds.

MS upgraded its rating on the greater China chip industry to Attractive from In-Line.

MS said major chipmakers in Taiwan, specifically TSMC (NYSE: TSM ), were likely to benefit the most from this trend, even as a recent spike in the Taiwan dollar presented some headwinds for revenue.

But MS also sees TSMC receiving a potential exemption or grace period from U.S. tariffs, given its commitment to building more American production.

MS said its view on AI demand remained strong despite macroeconomic headwinds from trade tariffs and slowing growth.

The investment bank said that on a recent Asia semi field trip, it found largely healthy inventory levels across major chip buyers, presenting the potential for a pick-up in orders.

But AI is expected to remain the biggest near-term driver of chips, with MS flagging a negative outlook for most non-AI chip sectors.

Still, general server chips, niche memory applications, and Chinese auto chip makers represent some bright spots in the non-AI chip sector.

MS noted that chip stock valuations had somewhat stalled in 2025 after a strong run in the prior year. But sluggish valuations presented an attractive opportunity in the sector, which could run up in tandem with its U.S. peers on AI demand.

Chinese AI chip demand- for training and inference models– is also expected to remain strong, especially after the release of DeepSeek earlier this year showed strong advances in AI development despite U.S. technology restrictions.

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