The valuation of Nvidia Corp. “has moved into the stratosphere in the short term,” but Morgan Stanley still sees the stock as an attractive way to play the semiconductor landscape.
Morgan Stanley’s Joseph Moore upgraded the stock from equal weight to overweight late Thursday, welcoming opportunities presented by the enthusiasm surrounding generative artificial intelligence. That’s the type of AI popularized by OpenAI’s ChatGPT chatbot, whose hype has driven companies across industries to look for AI links within their own companies.
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can help power these applications, one of the reasons Moore is more optimistic about the name.
“The high capital intensity of these workloads, particularly on the training side, is now a key part of the calculation for the largest technology companies, with NVIDIA having a dominance in the training market that is likely to continue for several years to come,” he wrote. .
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Moore previously sat on the sidelines at Nvidia over concerns about data center and gaming trends. That dynamic has “largely played out,” he wrote Thursday, and “the development of generational AI is too big a megatrend to be distracted by tactical concerns.”
He added that the excitement around big language models, which use machine learning to understand language, “is turning into higher spending, both in the short and long term.”
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Moore elaborated on what he viewed as a stratospheric valuation for the stock, which he said “trades at a P/E premium for our entire universe.” But he also noted that “the overall semiconductor group has come to an uncomfortable point where there are few bargains in areas with longer-term growth potential, even when conditions are tough.”
When you think about trends over a five-year period, Nvidia’s stock is still expensive, “but not dramatically different from competitors,” he argued. There’s even the potential for Nvidia to win at the expense of the rest of the computing world, he reasoned, as companies are under budgetary pressure but recognize the importance of investing in AI.
Moore wrote that “cloud vendors are reducing spending on traditional workloads to fund increasingly smarter AI models.”
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He raised his price target to $304 from $225 on the stock, which is up 1.3% in Friday morning trading.
Nvidia shares are up 77% year to date as the S&P 500 index SPX,
has increased by 2%.