Morgan Stanley's Bull Case For Nvidia Unchanged By Near-Term Concerns

The longer-term bullish case for Nvidia Corporation NVDA remains unchanged despite the existence of multiple near-term challenges, according to Morgan Stanley.

The Analyst

Morgan Stanley's Joseph Moore maintains an Overweight rating on Nvidia with a price target lowered from $273 to $260.

The Thesis

Nvidia faces four short-term headwinds heading into its Nov. 15 third-quarter report, Moore said in a Thursday note. (See his track record here.) 

None of the concerns should meaningfully impact the GPU maker's long-term story, the analyst said. They are:

• Weakness in the lower end of the market. End demand for Nvidia is "OK," Moore said: the company does a good job at managing the channel, and its 1,060 class products should "materially outperform" versus rival Advanced Micro Devices, Inc. AMD, the analyst said. 
• DRAM pricing. GDDR5 SDRAM pricing for Nvidia's Pascal products has been weak, but this is a low-margin business and shouldn't have much of an impact on the bottom line, Moore said. The Turing product makes use of GDDR6, which could somewhat "insulate" the company, he said. 
• Weaker Chinese demand. The Chinese government reportedly stopped approving video game licenses due to violence and gambling concerns, Moore said. Yet reports of a freeze have yet to be confirmed by the Chinese government.
• Turing success will take time. Turing could end up being a "breakthrough product," although it will take time for software to maximize the full potential of the chip, including ray tracing, according to Morgan Stanley. Early adoption looks "underwhelming" so far, the sell-side firm said. 

Price Action

Nvidia shares were down nearly 3 percent at $207.45 at the time of publication Thursday.

Related Links:

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Weakness In Nvidia's Gaming Segment Could Be A Passing Phase, JPMorgan Says In Upgrade

Photo courtesy of Nvidia.