Author: Rita
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Morgan Stanley just raised Samsung Electro-Mechanics’ target price from KRW 920,000 to KRW 2.56 million. Analysts have reclassified MLCCs (multilayer ceramic capacitors) from a cyclical industry to a structural growth story. The core logic is straightforward: AI servers demand 10 to 15 times more MLCCs than traditional servers.
AI triggers a surge in both volume and price
An AI server requires 440,000 MLCCs. What about a traditional server? Just 30,000. That’s more than ten times the difference.
This isn’t just about quantity. The demands on MLCCs from AI are also escalating: higher capacitance, smaller sizes, lower ESL and ESR. The focus has shifted from competing on volume to competing on quality, driving up ASP (average selling price). Morgan Stanley estimates that Samsung Electro-Mechanics’ MLCC business will account for 15% of its revenue by 2026 and rise to over 50% by 2030. This reflects enhanced pricing power and real profit expansion.
The supply shortage is structural, not cyclical.
This cycle resembles the MLCC supercycle from 2017 to 2018, but the underlying logic is entirely different. Back then, it was a short-term mismatch caused by inventory shortages and a surge in orders. This time, it’s a capacity ceiling meeting sustained growth in new demand.
Production lines for high-end MLCCs have already been fully booked, and it will take two years to bring new lines online. Inventory levels across the supply chain have now spread from the spot market to contract prices, and distributors are beginning to hoard stock, indicating they no longer view this as a temporary shortage.
Morgan Stanley expects MLCC prices to rise by 30% in the second half of 2026 and another 30% to 50% in 2027. This is not a prediction by futures traders, but a conclusion drawn from current contract prices and distributor behavior.
Why is Samsung Electro-Mechanics the biggest beneficiary?
SAMSUNG ELECTRO-MECHANICS benefits along three dimensions.
The first point is the direct price increase of MLCCs. MLCCs used in IT are rising in price, and those used in AI are also increasing—moreover, the AI segment has higher profit margins. In the 1Q26 earnings report, revenue already exceeded expectations at KRW 3.2 trillion versus the anticipated KRW 3.1 trillion. More importantly, Morgan Stanley has raised its EPS forecasts for the next three years, with FY27E lifted to KRW 55,477—a 71% increase from prior estimates. Operating profit margin is projected to rise from the current 15.7% to 24.5% in 2027 and further to 25.9% in 2028. This is not just number manipulation, but real profit expansion driven by enhanced pricing power.
The second is the ABF substrate. AI customers' ASIC chip orders are fully saturated, and Samsung Electro-Mechanics' shipments and profits in this area are growing rapidly.
The third is a new product line. Silica capacitors have secured orders worth $1.3 billion, and glass substrates have begun pilot production. These will not contribute to revenue this year or this month, but they are positioning us for the coming years.
Will ROE really jump from 7.5% to 32.2%?
Morgan Stanley assumes Samsung Electro-Mechanics' ROE (return on equity) will rise from 7.5% in FY25 to 17.3% in FY26, and further to 32.2% in FY28. Meanwhile, the company’s dividend payout ratio is expected to increase from the current 5% to 20%.
This means that a South Korean electronics components company, which already had a relatively high ROE, may now enter a higher profit cycle due to changes in its product mix and pricing power. Its current valuation of 1.4x P/B (price-to-book ratio) is below its historical average of 1.7x. The target price has been raised from KRW 920,000 to KRW 2.56 million, representing an increase of nearly 178%—this reflects not only expected earnings growth but also potential valuation recovery.
Understand where the risks lie
Upside risks: MLCCs are forced to continue rising sharply due to genuine shortages; smartphone demand rebounds stronger than expected; additional demand generated by Chinese government consumption stimulus policies.
Downside risks: A significant slowdown in Samsung Electronics' flagship phone cycle (Samsung Electro-Mechanics has a substantial portion of its consumer products); weak execution in expanding smartphone customers in China; and weak global consumer demand.
What about the catalysts? Further price increases in contracts, a rising book-to-bill order ratio, capacity utilization nearing full capacity, and confirmation of increased MLCC content from next-generation AI platforms (Rubin, VR200).
Newcomer in AI infrastructure
From a side dish to the main course, from a cyclical business to a structural one, from a traditional capacitor manufacturer to an AI infrastructure supplier—that’s the story Morgan Stanley tells about Samsung Electro-Mechanics. How long this narrative holds will depend on how AI chip demand, capacity expansion, and competitive dynamics evolve. But for now, supply constraints are supporting prices, and rising prices are sustaining profits.
Disclaimer
This article is a compilation and interpretation by Chaoxiang Research of third-party brokerage research reports. The ratings, price targets, earnings forecasts, and related judgments cited herein are the views of Morgan Stanley analysts and represent the position of their institution only; they do not reflect the views of Chaoxiang Research nor constitute any investment advice.
When reading, please note three points: First, the target price represents analysts’ expectations for approximately the next 12 months and is a forecast, not a guarantee—it may be adjusted repeatedly based on performance and market conditions. Second, sell-side research reports are inherently bullish, and some covered companies have investment banking relationships with the issuing brokerage. Third, the value of a report lies in its core logic and underlying assumptions, not in any single target price. Focus on the logic, not just the price.
The market carries risks; make decisions independently. This article should not be used as a basis for buying or selling any securities.
Data sources: Samsung Electro-Mechanics Q1 2026 financial report (SEC and other public data); Morgan Stanley research report (Shawn Kim et al., June 22, 2026)
Tide Research · June 2026