Morgan Stanley reiterates Nvidia as a top pick ahead of earnings

Published Mon, Aug 14 20239:07 AM EDTUpdated Mon, Aug 14 202312:21 PM EDT

Despite the recent sell-off, Morgan Stanley remains confident in Nvidia in the long run. Analyst Joseph Moore reiterated his $500 price target on the chipmaker, implying the stock stands to gain 22.4% from Friday's price. "With a backdrop of the massive shift in spending towards AI, and a fairly exceptional supply demand imbalance that should persist for the next several quarters; we think the recent selloff is a good entry point," Moore wrote in a Monday note. The firm expects a "healthy upside" to Nvidia's revenue, Moore said, adding that the company's guidance for $4 billion last quarter was the largest single increase in one quarter in semiconductor history. "It seems clear that the implied $7.5 billion in quarterly data center revenue is trending to $15 billion+ over the next few quarters, which is our primary focus driving enthusiasm for the stock," the analyst wrote. Much of the current supply chain shortage will likely resolve by the second half of 2024, he said. Shares of Nvidia have plunged nearly 10.2% this month, chipping away at its more than 185% gains this year, which have beaten every other member of the S & P 500. The company's second-quarter results are due Aug. 23 after the closing bell. Moore anticipates $500 million to $1 billion of revenue upside to guidance for the July quarter, bringing quarterly revenue between $11.5 billion and $12 billion. Nvidia recently surged past a $1 trillion market cap, making it the fifth-most valuable U.S. company. The analyst expects much of the company's growth over the next five years to come from Nvidia's datacenter division, as enthusiasm for generative artificial intelligence supports growth for AI/machine learning hardware solutions. OpenAI's viral chatbot, ChatGPT — as well as other AI models from few well-financed startups — all run on Nvidia's graphics processing units. "The bottom line is that this is a very positive situation, October numbers are entirely gated by supply, and the upper end of the buy side consensus has been reined in," Moore wrote. — CNBC's Michael Bloom contributed reporting.