July 21, 2026 / SemiMedia / — The recovery in microcontroller and analog semiconductor demand is continuing into the third quarter of 2026, although channel momentum has moderated from the sharp acceleration recorded earlier in the year, according to Morgan Stanley’s latest AlphaWise distributor survey.

None of the distributors surveyed expected unit shipments of analog chips or microcontrollers to decline. Industrial semiconductor demand remained stable, while automotive conditions were mixed, indicating that the recovery has not yet become uniform across end markets.

Distributor shipments of analog chips and MCUs are currently running above underlying consumption. Morgan Stanley, however, said the recovery appears to be supported mainly by improving demand rather than broad inventory restocking.

Inventory-building plans have moderated as distributors and customers take a more selective approach to replenishment. Purchasing activity is concentrated in products with low inventory, improving customer demand or emerging supply constraints.

Channel momentum has slowed from the first quarter, but the survey did not indicate weaker pricing or deteriorating shipment expectations. Morgan Stanley described the trend as a measured continuation of the recovery rather than a reversal.

Industrial equipment remains an important source of demand for analog chips and MCUs. Data center investment is also supporting power management, signal-chain and other analog products. Automotive demand remains less consistent, with improvement visible through some distributors but no broad recovery across the sector.

Supply conditions are beginning to tighten for selected analog, microcontroller and power semiconductor products. The constraints remain concentrated in particular product families, packages and applications and have not developed into an industry-wide shortage.

Morgan Stanley raised its second- and third-quarter estimates for Texas Instruments, projecting above-seasonal growth supported by analog, industrial and data center demand as pricing remains stable. The firm nevertheless maintained its underweight rating on the company’s shares.

Among other suppliers, Analog Devices has the clearest exposure to improving analog and industrial demand, while ON Semiconductor is positioned to benefit from selective power semiconductor tightness. NXP Semiconductors could gain if automotive demand strengthens, and Microchip Technology may benefit from improving MCU demand and pricing later in the second half, particularly during the fourth quarter.