Nvidia Corp.'s (NASDAQ: NVDA) recent stock gains are premised on the graphics chip maker's AI opportunity, which has prompted Morgan Stanley to turn bullish on the stock.
The Analyst: Joseph Moore upgraded Nvidia shares from Equal-Weight to Overweight and upped the price target from $255 to 304, suggesting roughly 19% upside potential.
The Thesis: Morgan Stanley's view of tactical numbers being challenged in both gaming and data centers has largely played out, Moore said in a note. 'The development of generational AI is too much of a megatrend to get distracted by tactical concerns,' he said.
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Nvidia stock will continue to be "hard to ignore' in an otherwise challenging semiconductor environment, the analyst said. AI has moved to be one of the most significant developments in technology.
It will likely replace human capital on a large scale, with cloud customers vying for leadership over the next three to five years, Moore said.Since the intensity of the AI workloads, particularly on training, increases, Nvidia is likely to be a big beneficiary, given its dominant position in the training market, the Moore said. He also noted a significant shift in cloud spending toward AI, potentially toward Nvidia.
Nvidia's valuation has spiked on near-term estimates but the overall semiconductor group has also rallied to an 'uncomfortable point' that there are few bargains in areas with long-term growth potential, especially as conditions are difficult, Morgan Stanley said.
'If we extrapolate growth trends for 5 years, NVIDIA valuation is high, but not dramatically out of line with peers,' Moore said. 'We have missed the bigger picture elements that NVIDIA is now the arms dealer for one of the technology races that matter most."
Expect high investment in Nvidia products. That's bad for the rest of computing as budget compression is met with high AI spending requirements, he explained.