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Nvidia’s Blackwell chip will steal the show in 2025, easing lingering concerns, Morgan Stanley said.
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Strategists said other noises would dissipate by mid-2025 and the stock is poised for another 20% gain.
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The bank named Nvidia as its “top pick” for next year.
Nvidia’s Blackwell chip will be the company’s biggest story in 2025 – and the success of its next-generation GPU will overshadow any lingering concerns investors may have, Morgan Stanley said.
In a note this week, the bank reiterated its “overweight” rating on Nvidia stock and said the chipmaker remains its “top pick” for next year. The bank’s optimistic attitude is fueled by the expected success of Blackwell – Nivida’s next-generation chip that enables artificial intelligence.
The bank issued a price target of $166 per share, implying a 23% upside from Friday’s share price of around $134.82.
“We are generally most excited about NVIDIA when the near-term data points look mixed, but the underlying dynamics are very strong. We think we are approaching that point now,” the analysts wrote in a note. “There is transition pressure, but by 2.25 the only topic we think will be Blackwell’s strength.”
Investors are already optimistic about the Blackwell chips, which are expected to hit the market in early 2025. Nvidia shares rose earlier this year after CEO Jensen Huang said demand for the chip was “insane,” boosting Wall Street expectations for continued earnings growth.
The chip is likely to be a “revenue driver” in the second half of next year, which could mean “significant upside for the stock,” Morgan Stanley added.
The success of the new chip could also ease a handful of investor concerns about the stock in the short to medium term.
“We think there are a number of concerns here, some of which are exaggerated, some of which are causing fear in the short term, but some of which we believe are not relevant in the longer term,” the bank said, highlighting four issues facing investors are particularly concerned about.
Investors are concerned about the slowing builds of Hopper, Nvidia’s current generation of AI chips. On its last earnings call, the company forecast revenue growth of just 69.5% for the fourth quarter, its slowest revenue forecast in seven quarters.
But the delay in Hopper’s construction is a “non-issue,” Morgan Stanley said.
“The reason, of course, is that we only have a few more quarters until the end of Hopper’s lifespan. We don’t want to correlate the Hopper builds with the Hopper revenues, which will continue for about three more quarters, but there is already a large backlog of builds, so it’s time to delay the start,” analysts wrote.
Investors may also be concerned that not all Blackwell products will ship at the same time. Nvidia said it would release seven variants of its Blackwell GPU.
“We’re hearing concerns about some types not being ready yet, and we don’t rule out that there could be some timing challenges with some product types,” analysts said.
They continued: “All fair, but all Blackwells should be sold, even if this drives allocation from one customer to another, and we think this will continue throughout the year. This is not a concern that should remain hanging.”
Concerns about Blackwell’s rollout should “completely disappear” by the second half of next year, the bank said.
Analysts noted that Nvidia has transferred some of its value “directly” to other chip makers in recent months. The bank pointed to companies like Broadcom and Marvel, two companies that produce ASICs, which are custom-made AI chips that serve as an alternative to Nvidia’s GPUs.
“But by 2025, we believe the largest users of ASICs will actually see purchasing shift to GPUs, based on conversations with those customers,” Morgan Stanley said. “While our forecasts for both AVGO/MRVL ASIC revenues are largely conservative, as are our forecasts for GPU, we believe GPU will significantly outperform ASIC this year.”
The major AI chip customers are seeing benefits in scaling GPU cluster sizes, enabling more advanced computing. But some financiers in the sector are raising questions about whether the returns from this are worth it, the bank said.
“Both constituencies are important, we cannot rule out consolidation in that part of the market,” analysts said. “But we note that many of the innovations Nvidia has delivered in recent years are aimed at improving the efficiency of large clusters,” they added, pointing to developments such as Nvidia’s acquisition of Mellanox, another chipmaker that will help expand into the data center supplies market.
“Even if there is some concern about the cooling of the AGI arms race, the growth in inference, the growth in sovereign training, the growth in enterprise training applications, and these are all multi-year growth engines, accounting for approximately 70% of total revenue data centers, so even with some consolidation in the arms race we should still see continued growth potential,” the analysts said.
Even after a 170% rally in 2024, forecasters are still generally bullish on Nvidia for next year. The continued excitement surrounding AI trading in the stock market is one of the key themes investors see heading into the stock market in 2025.
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