China Merchants Securities: AI-driven demand rebalances supply and demand in storage; focus on five key tracks showing marginal improvements in January.

China Merchants Securities advises focusing on five January themes—AI hardware, robotics, AI applications, non‑ferrous metals and domestic computing power—citing medium‑to‑long‑term cycles in AI, domestic substitution and 'dual carbon' transitions. The report highlights a structural rebound in global memory (SSD/NAND and DRAM) prices as of Jan 19, 2026 driven by AI demand, growing market interest in GEO (Generative Engine Optimization) stocks, and a major policy push via an eight‑agency 'AI + Manufacturing' implementation opinion; separately, Apple’s deal to use Google’s Gemini could involve multibillion‑dollar payments and shift AI competitive dynamics. Global sectors were mixed last week with materials, IT and energy outperforming, while the report flags typical macro and policy risks.

Analysis

Market structure: AI compute and memory winners include NAND/DRAM suppliers (MU, WDC, Samsung) and AI-accelerator vendors (NVDA, AMD) as ASPs trend up; losers are consumer device OEMs (AAPL exposure to higher BOM) and any low-margin whitebox OEMs. Pricing power shifts toward suppliers as CMB frames the move as structural shortage not seasonal inventory—expect ASP upside of 10–30% y/y in NAND/DRAM over next 3–9 months if wafer starts remain constrained.

Risk assessment: Tail risks include aggressive capex increases rebalancing supply within 12–24 months (returns to oversupply), China regulatory clampdowns on AI cross-border data flows, and a surprise slowdown in hyperscaler procurement; Apple/Google commercial terms evolving could reroute AI monetization and harm incumbents (OpenAI). Immediate moves (days) will be earnings and Apple/Google headlines; weeks–months will proof memory demand (order fills, inventory days) and 6–18 months will show capital-cycle responses.

Trade implications: Tactical longs: establish 2–3% position in MU and 1–2% in WDC targeting 30–50% upside over 6–12 months if NAND/DRAM ASPs sustain; buy 3–6 month 15–25% OTM call spreads to leverage upside while capping premium. Take 2% long in GOOGL to play Gemini monetization (scale if Google FY guidance shows incremental AI revenue); reduce AAPL exposure by 1–2% and hedge 3–6 month downside with 5% OTM puts sized to that reduction.

Contrarian angles: The market may be overstating permanence of shortage—historical parallels (2016–18 memory cycle) show capex responses often flip pricing in 12–24 months, so avoid full conviction without capex and inventory confirmation. GEO concept rallies look momentum-driven; prefer revenue-linked AI exposure over thematic small caps. Monitor memory wafer starts, hyperscaler inventory days and Google/Apple contract terms as early warning indicators.

Key Decisions for Investors

• Establish a 2–3% long position in Micron (MU) with a 6–12 month horizon; hedge 30% of position with 3–6 month 15% OTM put protection; add incremental if quarterly NAND/DRAM ASPs rise >15% QoQ.
• Add a 1–2% long position in Western Digital (WDC) and/or SMH ETF to capture sector-wide memory/AI hardware strength; target 25–40% upside in 9–12 months, trim if management signals >20% capex increase (risk of future oversupply).
• Open a 2% long position in GOOGL to play Gemini monetization; buy 12-month 10% OTM calls (or call spread) sized to 50% of the equity position to leverage potential multi-hundred-million-dollar licensing revenue—reassess after next quarterly guide.
• Reduce AAPL exposure by 1–2% (reallocate to semis/materials); if NAND/DRAM ASPs rise >20% YoY, buy 3–6 month 5% OTM puts on the trimmed AAPL allocation to protect against ~50–150bps gross margin compression.
• Increase 2–3% exposure to non-ferrous metals via COPX or copper futures for 6–18 months; add more if EV/renewables build plans or Chinese industrial PMI exceeds 50 for two consecutive months, and trim on >30% run-up from current levels.