Morgan Stanley reaffirms Nvidia as the top chip stock

Investing.com - Morgan Stanley has reclassified NVIDIA as its top semiconductor pick, believing that the recent stagnation does not reflect an improvement in the fundamental business trend.

“In the past two quarters, NVIDIA’s stock price has remained unchanged, but the business has continued to strengthen — this is due to market concerns about the sustainability of current growth,” analyst Joseph Moore said in a research report on Monday. He believes that the stock, trading at 18 times the 2027 earnings per share (EPS), presents “an unexpectedly good entry point.”

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This move reverses earlier positions, when Morgan Stanley favored memory stocks like SanDisk and Micron Technology, believing that AI-driven profit leverage was stronger in other sectors.

Moore stated that the impact of this trade has been more significant than expected, with memory stocks rising 300% to 900% since the recommendation was issued, while NVIDIA’s stock has remained flat despite earnings expectations climbing 38% over six months.

The analyst believes that concerns about sustainability and market share have weighed on market sentiment, but he sees improvements in both areas. Moore expects upcoming product updates to strengthen NVIDIA’s leading roadmap and help address competitive concerns.

Regarding demand, he pointed out that broad supply chain surveys show that hyperscale cloud providers are committed to multi-year spending growth. “There are currently no signs that the current investment cycle has ended,” he wrote, noting that in some cases, customers are prepaying to secure capacity through 2028.

Moore also noted that while supply constraints for AI processors may ease in the coming months, this could benefit NVIDIA, especially if other components like memory, storage, optical devices, and power supplies become bottlenecks.

He also believes that investor focus on recent supply indicators may obscure the underlying strong demand, and any easing in GPU delivery times could support a re-acceleration of market share, similar to previous cycles.

Additionally, Moore expects the upcoming GPU Technology Conference (GTC) to help rebuild confidence in market share prospects, even if it cannot fully address investor concerns about the sustainability of AI capital expenditure.

He stated that the event should once again highlight NVIDIA’s broader ecosystem and rack-level advantages, with Groq’s intellectual property potentially playing a role in the roadmap.

Although he expects competitors to grow slightly faster in 2026 due to NVIDIA’s scale, the analyst still considers NVIDIA well-positioned. Currently, NVIDIA accounts for about 85% of AI processor revenue, with ASICs slightly above 10%, and AMD below 5%.

Moore acknowledged that as major clients adopt more architecture-neutral strategies, some competitive moats are being eroded. Nonetheless, surveys continue to show a preference for NVIDIA in many deployments, and it is expected that ASIC and AMD’s main customers will drive NVIDIA’s business growth of over 80% by 2026.

The analyst maintains a buy rating on NVIDIA with a target price of $260, believing that the key driver is confidence in the continued demand for AI, rather than recent performance.

He stated that as future growth visibility improves — as seen in previous years — NVIDIA’s stock has historically experienced explosive outperformance.

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