【AI+NVDA】Morgan Stanley Reiterates NVIDIA as Top Pick: An Excellent Buying Opportunity

U.S. AI chip giant NVIDIA (NYSE: NVDA) reported impressive quarterly earnings, but the market remains cautious. However, Morgan Stanley is optimistic, re-establishing NVIDIA as the top pick in the chip industry, citing now as an excellent buying opportunity, replacing Micron (NASDAQ: MU). Morgan Stanley maintains an “Overweight” rating with a target price of $260.

Last September, Morgan Stanley shifted its preferred stock from NVIDIA to SanDisk (NASDAQ: SNDK), and in November, it switched again to Micron. The firm explained that the switch was due to the belief that, under AI demand, memory stocks would have more significant earnings leverage than NVIDIA.

After the report, SanDisk fell 11% in the first two days of this week, Micron declined 8%, while NVIDIA rose 2%.

Morgan Stanley notes that memory stocks have recently surged 3 to 9 times, whereas NVIDIA’s stock price has almost stagnated, fluctuating within a range. However, the company’s business and profitability continue to strengthen, with the latest quarterly profit outlook being raised by 38% within half a year.

Morgan Stanley expects NVIDIA to once again outperform the broader market this year.

Morgan Stanley states that over the past three years, the market has been skeptical about the outlook for the coming year at the start of each year. But as the situation clarifies and the market confirms sustained growth, NVIDIA’s stock price tends to significantly outperform the market, and this pattern is expected to repeat this year.

Overall, buying the AI hardware leader at about 18 times next year’s P/E ratio, amid low confidence in the sustainability of growth and market share, presents a high-probability investment opportunity.

Morgan Stanley also mentions that participating in the AI wave—whether through memory stocks or NVIDIA—raises an “intriguing debate.” Discussions with clients reveal that, given current valuations, memory stocks are considered more attractive due to stronger upward momentum and faster changes. However, Morgan Stanley does not agree that memory stocks have longer or more durable cycles than chip stocks.

Concerns Over Market Share Loss May Be Quickly Addressed; GTC Technology Conference Expected to Reveal Development Roadmap

Regarding fears of NVIDIA losing market share, Morgan Stanley suggests these may be alleviated at the upcoming GTC technology conference scheduled for March 16-19. The content is expected to be similar to 2024, likely revealing a multi-year development roadmap, with a focus on the new generation architecture “Rubin” set for H2 shipments, which is expected to continue attracting strong customer interest.

Morgan Stanley admits that, faced with challenges from ASIC chips and AMD, the “moat” of AI chipmakers has been slightly eroded. Nonetheless, it believes NVIDIA remains the top choice for global customers, especially as the two major ASIC users are expected to see over 80% business growth with NVIDIA by 2026.

Large Cloud Service Providers Maintain Strong Spending

Addressing concerns about the AI spending cycle, Morgan Stanley finds strong counter-evidence within the supply chain. It states that memory and NVIDIA investment themes are closely linked. Currently, hyperscalers are placing multi-year orders with memory suppliers, with some even prepaying in full for 2028.

Morgan Stanley questions: if these giants plan to cut spending next year, they would not be making large prepayments now. It reiterates that there are no signs that this AI investment cycle has ended, and the cycle is expected to continue for several more years.

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