The recent market downturn hasn't spared chipmakers, with the S&P 500 experiencing a correction and many chip makers, such as Nvidia (NASDAQ:NVDA) Stock taking a hit. However, amidst the broad sell-off, Morgan Stanley sees an opportunity.
Nvidia stock slumps
Nvidia’s stock price closed last week at $762 per share after a 10% decline in Friday’s session, taking it to its lowest level since February 22, 2024. The sell-off in artificial intelligence (AI) and chipmaker stocks was in part driven by Super Micro Computer (NASDAQ:SMCI) announcing its next earnings date without giving preliminary results, as well as disappointing updates from Taiwan Semiconductor Manufacturing (NYSE:TSM) and ASML (AS:ASML).
Analysts at Citi said it believes “some semi stocks will likely struggle given mixed results and a pause in the increased AI forecasts which drove the group from January to last month.”
“We continue to believe some semis will face a headwind until June/July when it could become apparent estimates are about to go up again and we believe this is a buying opportunity for our buy-rated names,” added the bank.
Even so, Bank of America Securities said US semiconductor stocks have been dented but not deterred. The firm remains constructive on chip stocks as it believes “we are only in quarter 3 of what is usually an average 10 quarter upcycle.”
BofA highlighted aspects such as the stagflation risk, rising rates, geopolitical worries, AI fatigue and an uninspiring near-term outlook from leaders TSM and ASML as factors weighing on chip stocks.
According to Morgan Stanley, concerns that GPU shortages are easing—which have been a factor for the last few months—continue to create anxiety.
“As we have written, we think that the shortages easing is a function of supply growth outgrowing the AI ecosystem, and also reflects the product transition to Blackwell starting just a few months from now,” said Morgan Stanley.
Morgan Stanley reiterates buy on Nvidia stock
Despite the sell-off, Morgan Stanley remains bullish on Nvidia’s stock, stating it remains buyers of the stock following last week’s sell-off, reiterating an Outperform rating on the stock
Morgan Stanley notes that as Blackwell ramps, starting in August, it is likely to be in short supply for several quarters.
“This still leaves Hopper doing some heavy lifting through early 2025 as we still see the majority of revenue from Hopper until next year, and there is, of course, some anxiety about a Blackwell pause,” wrote the bank. “But we simply are not hearing about that right now, as our contacts assure us that Hopper demand continues to grow and that the company can manage the transition to Blackwell effectively.”
Morgan Stanley likes the Nvidia setup, given that there is concern about a pre-Blackwell pause, and they don't expect such a pause.
This means that if numbers continue to be good, “the stock is unlikely to be held back by excessive near-term expectations, and even if there is a pause because Blackwell demand seems so robust, it does not seem to be a reason to sell the stock,” said Morgan Stanley.
Furthermore, there is confidence that the NVIDIA customers, such as Tesla (NASDAQ:TSLA), that are served through multiple OEMs are stronger than was expected a few weeks ago.