Morgan Stanley analysts reaffirmed Nvidia (NASDAQ) as a Top Pick on Wednesday after the chipmaker’s shares experienced a significant drop amid a broader market sell-off the previous day.
Nvidia’s stock plummeted 7% on Tuesday to close at $103.73, its lowest since May. This decline was mirrored across the chip sector, with the iShares Semiconductor ETF (NASDAQ) losing 3.6%.
Despite the decline, Morgan Stanley did not alter their estimates or price target for Nvidia. They noted that the sell-off offers a “good entry point” given the strong data points they continue to observe in both the short and long term, despite exaggerated competitive concerns.
The sell-off was driven by worries about customer capital spending budgets, competitive dynamics, export controls, and supply chain issues.
Morgan Stanley’s analysts acknowledge these challenges but believe they will diminish over time. For example, while customer spending on AI infrastructure has been inconsistent due to space and power constraints, demand for Nvidia’s GPUs remains robust. The analysts highlighted the resilience of Nvidia’s H100 GPUs and the upcoming Blackwell series, suggesting that spending concerns are premature.
Competition from companies like Amazon (NASDAQ), Apple (NASDAQ), and AMD (NASDAQ) has also put pressure on Nvidia’s stock. Nevertheless, Nvidia’s leading position in the AI market and its ability to win back customers from custom silicon alternatives underscore its strong competitive advantage.
“This is a large market and is not going to be served by a single Nvidia card,” analysts said. “But we are hearing multiple instances of customers who have invested in custom silicon or alternatives coming back to Nvidia for upside.”
Regarding export control concerns, particularly those involving China, the analysts noted that while geopolitical risks exist, Nvidia’s minimal trailing revenue from China limits potential impacts. Additionally, the adaptability of Nvidia’s H20 product to meet export requirements ensures continued market presence despite regulatory challenges.
Overall, Morgan Stanley maintains a positive outlook for Nvidia, driven by strong demand indicators and high customer enthusiasm for the Blackwell GPUs.
“Visibility will actually increase as demand moves from Hopper to Blackwell,” the analysts noted, “as the constraint will shift back to silicon; H100 lead times are short, but H200 lead times are already long, and Blackwell should be even longer.”
With a valuation that now appears “much more reasonable than a few weeks ago,” Morgan Stanley believes the market is “taking a very glass-half-empty view” of some of the hyperscale comments, even though there is a clear desire among customers to continue investing in developing multi-modal generative AI.
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