Nvidia's stock has had a killer run. Why it's still Morgan Stanley's top AI-chip pick.

By Emily Bary

Nvidia's $2.2 trillion market cap, once seen as 'unfathomable,' could head even higher, according to Morgan Stanley

Nvidia Corp. has a nearly $2.2 trillion market capitalization, which would have been thought of as "unfathomable a few quarters ago," according to a Morgan Stanley analyst.

Yet even after Nvidia's (NVDA) blockbuster stock performance last year and its strong start to 2024 - it's up 75% on a year-to-date basis - Morgan Stanley's Joseph Moore says the name is still his preferred way to play the artificial-intelligence chip boom. The analyst upped his price target on the overweight-rated stock to $1,000, from $795, late Tuesday.

There are several reasons behind Moore's view, he noted in his latest report. For one, the company's "product execution - and potentially aggressive pricing - will pressure alternatives."

Read: Nvidia and these other chip stocks named top plays into earnings season

Nvidia recently showed off its new Blackwell chip lineup and surprised some on Wall Street with its talk of pricing. While the numbers aren't exact, the company indicated that it was pricing the chips aggressively in a bid to grow the market and make them more accessible.

Additionally, Moore said that there's been a shortage of rack space, which he sees as beneficial to Nvidia in winning market share.

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"Through most of 2023, there were shortages of GPUs, and the tighter allocation environment was a factor driving purchasing behavior," he wrote. "Cloud customers viewed alternatives - custom silicon or merchant - as a project, to alleviate dependency on Nvidia and differentiate offerings from competitors' offerings."

But now the bottlenecks don't seem to be about graphics processing units, but rather about rack space. "Faced with limited slots for AI processors, we are seeing some of the appetite for alternatives taking a back seat to the highest [return-on-investment] processor, which continues to be Nvidia," Moore said.

Rack-scale products could help Nvidia boost its revenue potential, he added.

Additionally, Moore flagged that he likes Nvidia's stock more than names within the company's supply chain. He said that "upside that is already being felt in markets, such as [high-bandwidth memory] or optical, points to future upside for Nvidia."

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Plus, it's not as if the Nvidia wannabes haven't seen monster stock runs of their own, either. The stock multiples for Advanced Micro Devices Inc. (AMD) and Marvell Technology Inc. (MRVL) have hit highs, "as stocks have gone up while overall numbers have come down." Shares of Micron Technology Inc. (MU) and Applied Materials Inc. (AMAT), which also stand to benefit from AI-chip spending, have also seen nice runs.

-Emily Bary

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04-10-24 1611ET

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