On Friday, Morgan Stanley (NYSE:MS) adjusted its stance on VAT Group AG (VACN:SW), downgrading the stock from Equalweight to Underweight and reducing the price target to CHF350 from CHF460. The revision follows a reassessment of the memory sector's performance and capital expenditure (capex) projections.
The downgrade was prompted by a shift in the global memory market. Earlier in the year, Morgan Stanley had reinforced its Overweight rating on VAT Group, citing four main drivers for potential outperformance. This optimistic view was based on signs of recovery in the memory sector, with strong demand helping to clear inventories. However, recent developments have led to a less favorable outlook.
Morgan Stanley's global team last week revised its perspective on the Memory sector, noting a deteriorating pricing environment. This change is attributed to an absence of a cyclical recovery in areas outside of Artificial Intelligence (AI). Additionally, there has been a noted delay in NAND capital expenditures, which are now expected to extend well into the following year.
Despite these setbacks, not all indicators are negative. The analyst acknowledged certain positive aspects, such as VAT Group's exposure to the Chinese market and the ongoing build-out of Gate-All-Around (GAA) technology. Nevertheless, these factors were not sufficient to prevent a downward adjustment in both earnings estimates and the valuation multiple for VAT Group.
The revised price target of CHF350 reflects the new expectations and the downgrade to Underweight signifies a more cautious view of the company's stock by Morgan Stanley. The analyst's statement provided a detailed rationale for the changes in the investment firm's outlook on VAT Group.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.