Morgan Stanley upgrades Nvidia, says A.I. narrative is 'too strong to remain on sidelines'

Published Fri, Mar 17 20235:55 AM EDT

It's time to buy shares of Nvidia as excitement around artificial intelligence shows no signs of waning, Morgan Stanley said. Analyst Joseph Moore upgraded shares to overweight from equal weight, saying in a Thursday note to clients AI developments outweigh persisting challenges in areas such as gaming. "Having been EW for a large move in the stock, we still see indications that [large language model] enthusiasm is turning into stronger spending both near term and long term; we have been too data point oriented around a positive bigger picture, but the narrative is too strong to remain on sidelines," he wrote. NVDA YTD mountain Nvidia shares so far this year After a difficult year, semiconductor stocks have rallied in 2023, with Nvidia shares up nearly 75% as of Thursday's close, following a 50% slump in 2022. According to Moore, the latest bounce back in semi shares has created "few bargains in areas with longer term growth potential," with Nvidia's trailing price-to-earnings multiple last at nearly 147 times. "NVIDIA valuation is high, but not dramatically out of line with peers; and at the limit ,high investment in NVIDIA products is even bad for the rest of compute, as budget compression is met with high AI spending requirements," Moore said. "All of that makes NVIDIA attractive on a relative basis vs. other compute centric names." Along with the upgrade, Moore lifted his price target on shares to $304 from $255 a share, implying 19% upside from Thursday's close. Over the next fives years, he expects emerging AI and machine learning opportunities within industries like software and services, networking and advanced driver assistance systems to drive strong growth for the company. "While our views that NVIDIA would see tactical numbers challenged in both gaming and data center have largely played out, the development of generational AI is too much of a megatrend to get distracted by tactical concerns," Moore said. "The stock will continue to be hard to ignore in an otherwise challenging semiconductor environment." — CNBC's Michael Bloom contributed reporting