Morgan Stanley raised its ratings on two leading ABF substrate suppliers, upgrading Unimicron Technology Corp (TW:3037) and Nan Ya PCB to Overweight, and said the market for ABF substrates is entering a durable up-cycle driven by AI-related demand that should last through the end of the decade.
The firm told clients that ABF substrate demand is undergoing a structural change. It expects AI-related applications - including GPUs, ASICs and networking chips - to make up roughly 75% of the ABF substrate end market by 2030, versus about 10% in 2015. That shift, Morgan Stanley said, supports stronger growth and improved margins across the supplier base.
Ajinomoto Build-Up Film, or ABF, is described by the broker as the de facto standard interlayer insulating material used in high-performance semiconductor substrates. ABF accounts for more than 90% of the market for the material used to produce advanced substrates for CPUs, GPUs, XPUs, FPGAs and similar devices. Morgan Stanley highlighted the changing composition of demand: PC-related consumption, which constituted about 70% of the market in 2015, is expected to decline to around 15% by 2030.
On the market sizing front, Morgan Stanley projects the ABF substrate market value will expand at a compound annual growth rate of 16.1% from 2025 to 2030, compared with a 9% CAGR over the prior five years. The brokerage warned the industry is likely to move into undersupply beginning in 2027, which it said would add pricing pressure on top of recent increases that were driven by higher material costs.
Reflecting these dynamics, Morgan Stanley now expects earnings to rise steeply between 2025 and 2028. The bank forecast a compound annual earnings growth rate of 105% for Unimicron and 113% for Nan Ya PCB over that period. It also boosted its price targets - raising Unimicron's target to NT$500 from NT$120.75 and Nan Ya PCB's to NT$515 from NT$165, figures the firm said imply 36% and 24% upside, respectively.
The brokerage argued this cycle differs from earlier, PC-driven swings that were more volatile and consumer-led. According to Morgan Stanley, AI-related demand offers longer visibility and could underpin multiple expansion. It added that current valuations, while reflecting near-term price increases, do not fully incorporate projected AI-driven volume growth and the tighter supply conditions anticipated from 2027.
Alongside the upgrades, Morgan Stanley kept an Overweight rating on Samsung Electro-Mechanics. By contrast, it maintained an Underweight rating on Ibiden, citing more stretched expectations for that name after a sharp rally.
Sector implications
- Semiconductor materials and substrate manufacturing stand to benefit from AI-driven demand shifts.
- Component suppliers to high-performance compute markets - including GPU, ASIC and networking chip makers - are key drivers of future ABF consumption.
- Valuation dynamics across the semiconductor supply chain may be affected by the anticipated move into undersupply and the resulting pricing environment.
The analysis from Morgan Stanley frames a multi-year structural change in ABF substrate demand dominated by AI-related use cases, with material market share, growth projections and supply tightness cited as key pillars supporting the broker's upgraded stance on Unimicron and Nan Ya PCB.