Morgan Stanley Crowns Nvidia As Top AI Stock Pick, Warns Of Potential Market Headwind Amid AI-Driven Rally

Morgan Stanley revised its ranking of AI stocks on Friday, telling investors in a note that it is positioning Nvidia Corporation NVDA as its new top pick, as the firm sees the Santa Clara, California-based tech giant’s potential for near-term growth in the AI sector.

Although Advanced Micro Devices, Inc AMD was Morgan Stanley's previous top choice, analyst Joseph Moore maintained a bullish outlook on the company’s AI opportunity, foreseeing 2024 as the year for AMD’s significant impact.

The AI Analyst: Moore upgraded the price targets on the following stocks.

Nvidia Corp: From $450 to $500.
AMD: From $97 to $138.
Marvell Technology Inc MRVL: From $55 to $68.
Intel Corporation INTC: From $31 to $38.

Moore's decision to favor Nvidia over AMD is attributed to Nvidia's ability to consistently "beat and raise" its earnings per share, making it more attractive for near-term gains.

Nvidia's favorability upgrade is buoyed by the company's AI training demand, which continues to grow, attracting new major customers not previously contemplated.

The Morgan Stanley analyst also highlighted increasing investor interest in other AI plays beyond Nvidia, which, in turn, could potentially cannibalize non-AI legacy compute business within the semiconductor industry.

With that in mind, Moore mentioned the net impact of AI growth remains unclear across the board, with the exception of one “2023 leader from the standpoint of numbers going up — Nvidia.”

The investment bank originally selected AMD as the top pick for 2023 due to expectations of server market share gains driving the group’s outperformance amidst a challenging macro environment and inventory corrections in the consumer end market.

Moore noted the rapid shift in spending away from traditional server infrastructure towards AI resulted in AMD’s potential not yet being fully realized.

The AI spending surge by the largest server market spenders — the cloud providers — poses a serious threat to non-AI hardware this year, Morgan Stanley said, citing the lack of flexibility around fixed capital investment growth, combined with the fast pace at which AI applications have become a basic requirement in many industries.

With potential macro challenges in mind, Moore still sees a significant upside in the AI-linked revenue for companies within his coverage. In particular, Moore said Nvidia should trade at a premium given the higher probability of upward revisions in the near term.

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