Morgan Stanley just upgraded these 2 Japanese AI stocks

Investing.com -- Morgan Stanley has upgraded two Japanese semiconductor equipment makers, saying a recovery in front-end equipment demand tied to AI-related investment is now firmly underway.

In a note following meetings at SEMICON Japan, Morgan Stanley analyst Tetsuya Wadaki told investors that the bank has upgraded Tokyo Electron and Kokusai Electric to Overweight, citing a clear inflection in market conditions. 

“We believe the front-end equipment market entered a full recovery phase in mid-November,” the analysts said, adding that inquiries for equipment “have surged sharply since a month ago.”

Morgan Stanley attended booth tours with semiconductor production equipment makers on Dec. 18, where companies consistently pointed to a rapid increase in demand. 

“All companies noted that from mid-November to December 2025, inquiries for equipment from foundries and DRAM makers have increased rapidly,” the firm said.

The recovery is reportedly being driven by additional investment from Taiwanese foundries focused on AI semiconductors and by tight conditions in memory. 

Morgan Stanley highlighted “additional investments by Taiwan foundries for AI semiconductors and significant supply shortages in DRAM” as key factors behind the rebound.

As a result, the bank is shifting its valuation framework for the two stocks. For Tokyo Electron and Kokusai Electric, Morgan Stanley said it is “switch[ing] our target P/E from 14.0x for during corrections to 20.0x for recovery phases,” reflecting improved earnings visibility.

The bank raised its target for Kokusai Electric to JPY 5,800 from JPY 4,000, while the Tokyoo Electron target was lifted to JPY 39,600 from JPY 34,900.