Morgan Stanley on Tuesday upgraded its outlook for several Japanese electronics component manufacturers, singling out TDK as its highest-conviction pick amid expectations for robust high-end smartphone production in North America and increased demand related to AI data centers.
The brokerage said it expects production of high-end smartphones in North America to remain solid in 2026 and beyond. Within that market dynamic, Morgan Stanley noted TDK is well placed to capture growing sales of higher-margin products, specifically metal-case rechargeable batteries and silicon-anode rechargeable batteries.
On the AI and data center front, the bank reiterated developments in TDK's hard disk drive head business. Historically, TDK supplied drive heads solely to Toshiba. According to Morgan Stanley's note, TDK resumed shipments in January to either Western Digital or Seagate Technology, and the bank expects shipments to be restarted to the other major drive supplier in the fiscal year ending March 2027.
Looking further into energy-related components for AI infrastructure, Morgan Stanley anticipates TDK will begin shipping rechargeable batteries intended for AI and data center backup battery units in fiscal 2027. The bank projects sales from these units to rise substantially beginning in fiscal 2028, and it said it expects TDK's earnings to outperform market consensus.
Beyond TDK, Morgan Stanley raised Alps Alpine to an overweight rating. The bank pointed to Alps Alpine's role as a supplier of camera actuators for high-end U.S. smartphones and said anticipated new camera functions on 2026 models should raise the value of camera actuators. Morgan Stanley expects Alps Alpine's earnings from fiscal 2027 to exceed consensus estimates.
Murata Manufacturing retained an overweight rating, with the bank forecasting additional profit gains from its core multilayer ceramic capacitor products. Morgan Stanley also expects substantial contributions from non-multilayer ceramic capacitor product groups starting in fiscal 2028. Those groups include increased penetration of radio frequency modules for North American smartphones, expanded rechargeable battery sales for AI and data center backup battery units, and DC-DC power modules for AI data centers.
In contrast, Morgan Stanley kept underweight ratings on Ibiden and Hamamatsu Photonics. While Ibiden is a significant supplier of flip chip package substrates for AI servers to NVIDIA, the company effectively reduced its fiscal 2026 earnings guidance. For fiscal 2027, Morgan Stanley expressed skepticism that procurement volumes of glass cloth and copper-clad laminate will grow meaningfully, which the bank said would leave Ibiden's earnings below consensus.
Hamamatsu Photonics, the note said, has potential applications in quantum computing that leverage laser technology and wafer processing. Nonetheless, Morgan Stanley expects Hamamatsu to record a fourth consecutive year-over-year earnings decline in the fiscal year ending September 2026.
The bank's note outlines a mix of upgraded and cautious views across the components sector, with particular upside identified at TDK tied to both high-end smartphone demand and emerging AI data center battery and module opportunities.