Morgan Stanley Flags Chinese Chip Stocks as Buy in 2026 Report
Morgan Stanley’s semiconductor team made a striking call in its mid-2026 outlook
In a report published on June 5, 2026, Morgan Stanley’s Asia semiconductor analysts upgraded their stance on Chinese chip packaging and testing firms, recommending clients “buy packaging, buy testing, buy Chinese chips” while steering clear of traditional chip sectors facing cyclical headwinds.
The report, authored by analyst Charlie Chan and his team in Taipei, lays out capacity allocation data for CoWoS (chip-on-wafer-on-substrate) advanced packaging through 2026, covering NVIDIA’s B300 and Rubin architectures, Google TPU, AWS Trainium3, Microsoft Maia, and the newly announced OpenAI Nexus chip.
Why the call matters
Advanced packaging has become the bottleneck for AI chip production. TSMC’s CoWoS capacity remains fully booked through mid-2027, and Chinese OSAT (outsourced semiconductor assembly and test) firms like JCET and Tongfu Microelectronics are picking up overflow orders. Morgan Stanley estimates that Chinese OSAT firms will handle roughly 18% of global advanced packaging volume by Q4 2026, up from about 11% a year earlier.
“The traditional semiconductor cycle is peaking,” the report states. “But the AI infrastructure buildout creates a parallel demand stream that insulates packaging and testing firms from the downturn.”
Key players in the packaging shift
| Company | Role | 2026 Outlook |
|---|---|---|
| JCET Group | Advanced packaging for AI chips | Revenue +25-30% YoY |
| Tongfu Microelectronics | FC-BGA and 2.5D packaging | Expanding capacity 40% |
| TSMC | CoWoS dominance | Capacity fully booked through 2027 |
| ASE Technology | OSAT leader, SiP integration | AI packaging revenue +50% |
China’s legacy chip expansion continues
Separately, China’s dominance in legacy chips (28nm and above) continues to grow. According to SEMI’s Q1 2026 World Fab Forecast, China added more legacy chip production capacity in 2025 than the rest of the world combined. By 2027, China is forecast to control 39% of global legacy chip output.
The Chinese government’s “Big Fund” — the National Integrated Circuit Industry Investment Fund — has directed roughly $95 billion across three funding rounds, with the latest in May 2024 adding $48 billion. The fund supports everything from wafer fabrication to equipment localization.
Supply chain implications
The packaging bottleneck creates a two-speed market. Advanced AI chips (sub-5nm) remain constrained by CoWoS capacity, while mature-node chips face oversupply pressure. Chinese firms are positioned differently in each segment: they’re gaining share in packaging/testing while flooding the market with mature-node chips for automotive, industrial, and consumer electronics applications.
Intel and AMD continue to feel the squeeze. Intel’s China revenue fell from $20.03 billion in 2019 to $14.85 billion in 2023, as Beijing’s “Delete A” (de-Americanization) policy pushes state-owned enterprises and telecom carriers to phase out foreign semiconductors by 2027.
What to watch
The bull case for Chinese packaging firms rests on AI capex staying above $200 billion annually through 2028. The bear case assumes a sharp pullback in hyperscaler spending — possible if AI monetization disappoints. Morgan Stanley’s base case: moderate growth with Chinese OSAT firms capturing incremental share as Western packaging capacity remains tight.
Investors should monitor TSMC’s CoWoS expansion timeline (new capacity coming online in Tainan and Kumamoto in Q1 2027) and any further US export controls on advanced packaging technology to China.
Sources
- Morgan Stanley, “2026 Semiconductor Report: Buy Packaging, Buy Testing, Buy Chinese Chips,” June 5, 2026
- SEMI, Q1 2026 World Fab Forecast
- China US Focus, “PRC Industrial Policy in the U.S.-China Semiconductor Chip Competition”
- FTC Electronics, “Electronics Weekly News,” June 1-7, 2026