Nvidia is AI’s top pick and the stock could jump 15% as demand picks up since the chipmaker’s earnings report, Morgan Stanley says

Nvidia Corp. CEO Jen-Hsun Huang speaks at the GPU Technology Conference in San Jose, California.  Huang then unveiled the Titan X processor running with a GeForce GTX Titan X graphics card during the presentation.

Jensen Huang, CEO of NvidiaKim Kulish/Corbis/Getty Images

  • Morgan Stanley raised its price target on Nvidia to $500 and called the stock a “top pick.”

  • Analysts said demand had picked up since the chipmaker’s earnings report last month.

  • Nvidia is receiving orders from customers who weren’t considered major buyers until now.

Nvidia stock has more room for improvement as demand has only increased since the chipmaker’s earnings report last month, Morgan Stanley said.

Analysts raised their price target on Nvidia, which has blown Wall Street away with its AI chips, to $500 from $450, representing a 15% upside from current levels.

That’s despite stocks already up 200% year-to-date and joining a handful of other tech giants with a market capitalization of $1 trillion or more.

Morgan Stanley also named Nvidia its new “top pick,” stripping that moniker from former holder rival chip stock AMD. Analysts said Nvidia had more short-term upside, predicting it will be the only company to beat estimates and raise its forecast this calendar year.

“The demand environment for AI training has continued to accelerate since NVIDIA’s report, with our industrial contracts reporting daily new orders from customers who were not considered major customers until present,” the note reads.

Last month, Nvidia raised its second-quarter revenue forecast to $11 billion, more than 50% above consensus, due to growth in the generative artificial intelligence market. The company’s AI chipsets help drive the technology behind OpenAI’s ChatGPT and Alphabet’s Bard chatbots.

Morgan Stanley said there had been a rapid shift in investment from traditional server infrastructure to AI infrastructure, calling Nvidia “the cleanest story in AI hardware”.

“Although we’ve been positive since the headline update earlier in the year, we were nowhere near as optimistic as we should have been,” analysts said.

Not only are existing customers accelerating their spending, but there is also heavy spending coming from app developers, enterprise IT departments and even governments, according to the note.

While the numbers may not be sustainable over the long term, Morgan Stanley still forecasts “higher capital intensity” over the next few years.

“Frankly, the commentary around these markets is more positive than anything we’ve heard in 29 years of semiconductor stock coverage.”

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