Samsung Electronics Co shares were down over 4% to a low of one month Monday following Morgan Stanley cutting its recommendation on the tech giant based in South Korea, citing worries that the memory chip boom is going to reach its peak soon.
The super-cycle memory chip of higher prices because of demand for more strength in servers as well as smartphones was the big driver of record profit during the third quarter for Samsung of 14.4 trillion won or $12.91 billion that it posted in October, with investors focusing on the length it would last.
On Sunday a research report released by Morgan Stanley downgraded Samsung from overweight to equal weight and cut its stock price target 3.4% to just over 2.8 million won. Morgan Stanley said Samsung earnings in its memory segment would likely not grow materially in 2018.
The report added that downside risk was seen as NAND prices are starting to reverse during the 2017 fourth quarter. At the same time, visibility on supply-demand from the DRAM has reduced beyond the first quarter of 2018, said the report.
Samsung Electronics saw its shares fall 4.2% by early Monday morning in Asia, their biggest percentage loss intraday in over a year. Nevertheless, the shares remain 47% higher for 2017, giving it a $353 billion market value.
Some analysts have said that Samsung is not as likely to be affected by the trends in the price of chips compared to rivals such as SK Hynix the second largest memory chips maker in the world trailing just Samsung.
One analyst said the reaction was slightly over sensitive as this was all known prior to now.
The analyst added that everyone knew that prices of NAND would reduce, which is needed in actuality in order to encourage strong demand and to increase shipments. In addition, Samsung is strong in its NAND chips that are for data center solid state drives (SSDs) which will not be affected as much.
SK Hynix shares fell by up to 3.6% the largest drop intra-day since late last month. In October, Samsung said it is expecting the tight supply and demand position to continue in the DRAM and NAND space into 2018.
Smartphones have become stronger and companies are pushing more and more into cloud systems and cloud storage, and the memory chips have become very high in demand.