Nvidia Reinstated as Morgan Stanley's Top Semiconductor Pick on Valuation

Morgan Stanley has reinstated Nvidia as its top pick among semiconductor stocks, citing the chipmaker's strong market position and what the bank calls an "undemanding valuation." The move follows recent investor meetings with Nvidia's senior leadership, including CEO Jensen Huang and CFO Colette Kress.

Analyst's Rationale

In a note to clients, Morgan Stanley analyst Joseph Moore described Nvidia as "well positioned" and highlighted its valuation. The stock currently trades at 15 times the bank's fiscal 2028 earnings estimate. Moore noted that while a return of enthusiasm for AI could lead to multiple expansion, it is not necessary for the stock to perform well, as earnings estimates continue to rise.

Shifting Market Dynamics

The bank believes the primary bottleneck in the artificial intelligence sector is shifting from chip production to the speed of data center construction and financing. This trend, according to the note, plays to Nvidia's strengths, given its extensive network of 80 cloud partners, 55 of which are outside the U.S.

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Moore also emphasized the breadth of Nvidia's customer base, which extends far beyond the largest hyperscale cloud providers. He wrote that half of the company's business, and likely the faster-growing portion, comes from a diverse group including AI model startups, sovereign entities, and enterprise customers.

Future Growth Drivers

Morgan Stanley also pointed to Nvidia's strategy of increasing its revenue per gigawatt of power consumed. The firm's analysis suggests Nvidia's upcoming 2028 Feynman architecture is expected to increase this metric from $40 billion to well above $50 billion. Looking further ahead, the bank anticipates that the rise of AI agents will drive significantly more spending on GPUs than on CPUs.