Artificial intelligence is gaining in popularity, but there’s a “cheaper” way to play it, according to Morgan Stanley. The bank highlighted the DRAM business in semiconductors. It stands for dynamic random access memory — a type of semiconductor memory typically needed by a computer processor to function. “Memory is a cheaper way to play the start of AI’s explosive new decade-long growth phase,” Morgan Stanley analysts wrote in a May 29 note. “We put the spotlight on Hynix’s market-leading HBM DRAM business, uniquely positioned to capitalize on AI computing needs,” they said, referring to South Korean chipmaker SK Hynix . The bank said SK Hynix is a “key beneficiary of NVDA’s AI opportunity.” Nvidia shares surged last week after it reported earnings that blew past expectations, and investors bought into the stock on the AI buzz. “We have started to see the impact of AI in memory, as NVIDIA (NVDA.O) provided statistical evidence that supports our investment thesis – it has pulled forward the substance of the AI theme and raised the bar on DRAM revenue growth,” said Morgan Stanley. Memory with high performance and bandwidth is used in Nvidia’s H100 graphics processing units, and are “driving significant new demand growth for memory … for the AI server system,” the bank said. GPUs underpin most generative AI tools. For SK Hynix, that demand growth will account for 25% of its DRAM revenue exposure by the fourth quarter this year, going by Morgan Stanley’s estimates. The bank maintained its overweight rating on SK Hynix and raised its price target for the stock from 110,000 Korean won ($83) to 140,000 Korean won. That represents potential upside of about 29%. BofA in a separate June 1 report also named SK Hynix as a top pick, saying it will benefit from Nvidia’s push into AI. “SK Hynix is the only chipmaker that supplies HBM3 to NVIDIA, to our knowledge,” said BofA, referring to the high bandwidth memory. “We also believe HBM offers lower cyclical risk and new growth opportunities due to its high margin profile and strong demand (from NVIDIA, etc).” It gave SK Hynix a price target of 160,000 won, or upside of more than 40%. The ‘AI-driven memory rally is real’ Morgan Stanley estimates that global AI revenue will reach $180 billion this year and grow to nearly $2 trillion by 2030 — and it will be a key driver of semiconductor revenue. “Memory is the ‘workhorse’ for AI servers,” the bank said. “The adoption of AI server usage increases demand for all types of memory and could cause memory to become a future bottleneck as AI eats massive amounts of data to support its needs.” It said that the “AI-driven memory rally is real” and is likely to continue for some time. “While at a certain point the market will see some froth and bubbles, the potential for AI and the earnings power that it will provide is undeniable,” the analysts wrote. Stocks are “materially cheaper” now than in the previous cycle, Morgan Stanley said. “The market is still underestimating the impact of AI on memory, in our view, given that we are still early in a journey that will take decades,” the bank said. — CNBC’s Michael Bloom contributed to this report.