On Monday (NASDAQ:MNDY), Morgan Stanley (NYSE:MS) maintained its Overweight rating on NVIDIA (NASDAQ: NASDAQ:NVDA), while increasing the price target from $150.00 to $160.00. The adjustment comes as the analyst anticipates improved gross margins for the company in October. NVIDIA had previously projected a decrease in gross margins from 75.7% in July to 75.0% in October. However, the analyst suggests that this forecast may be conservative.
The rationale behind the conservative gross margin guidance from NVIDIA is linked to the expected lower margins during the initial ramp-up of its new product, Blackwell, starting in January. Despite this, the analyst believes the costs associated with Blackwell will not recur, as the significant writedown of non-yielding Blackwell revenue was accounted for in the July quarter.
The analyst also notes that October should not face significant mix-related challenges, given that Blackwell and related increases in H2O are still minimal at this point. The potential for improved margins is attributed to the absence of repeat costs from the previous quarter.
However, it's anticipated that NVIDIA will continue to exercise caution regarding its gross margin outlook. The introduction of Blackwell, along with associated products like Grace, NVLink switches, and Spectrum X, is expected to bring immature yields and some degree of margin uncertainty. The analyst expects the company to signal further gross margin challenges ahead due to these factors.
The price target increase reflects a positive outlook on NVIDIA's financial performance, particularly in terms of gross margins, despite the anticipated impact of new product introductions on the company's profitability.
In other recent news, NVIDIA's price target has been raised by Piper Sandler and Melius due to the company's leading role in the AI accelerators market and promising financial projections. Piper Sandler increased the price target to $175, highlighting NVIDIA's projected revenue beat for the October and January quarters.
Melius, on the other hand, raised the target to $185, emphasizing NVIDIA's attractive price-to-earnings ratio and strong capital expenditure intentions among the top five AI infrastructure spenders.
In the realm of AI advancements, OpenAI is pioneering new training techniques for AI models, particularly "test-time compute," which allows for more efficient processing of complex tasks. This innovative approach, incorporated into OpenAI's latest o1 model, may influence the demand for resources, including energy and chip types.
However, regulatory measures are also shaping the AI and semiconductor industries. The U.S. government has directed Taiwan Semiconductor Manufacturing Co (TSMC) to halt shipments of advanced chips to Chinese companies, following the discovery of a TSMC chip in a Huawei AI processor, potentially breaching export controls.
TSMC has committed to adhere to both domestic and international regulations, informing its clients of the suspension of chip shipments. These recent developments underscore the dynamic nature of the AI sector and its intersection with global trade regulations.
InvestingPro Insights
NVIDIA's strong financial performance, as highlighted in the Morgan Stanley analysis, is further supported by real-time data from InvestingPro. The company's impressive gross profit margin of 75.98% for the last twelve months as of Q2 2025 aligns with the analyst's positive outlook on margins. This metric, coupled with NVIDIA's revenue growth of 194.69% over the same period, underscores the company's robust financial health.
InvestingPro Tips reveal that NVIDIA has a perfect Piotroski Score of 9, indicating strong financial stability and performance. Additionally, the company is trading at a low P/E ratio relative to near-term earnings growth, which could suggest potential undervaluation despite its recent price surge.
It's worth noting that NVIDIA's stock price is trading near its 52-week high, with a significant return of 205.52% over the past year. This performance aligns with the analyst's bullish stance and increased price target.
For investors seeking a more comprehensive analysis, InvestingPro offers 23 additional tips on NVIDIA, providing a deeper understanding of the company's financial position and market performance.
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