Morgan Stanley: Nvidia 'The Cleanest Growth Story In Semis,' With New Products Ahead

Morgan Stanley left a meeting with NVIDIA Corporation NVDA CFO Colette Kress convinced the weak outlook for the gaming business isn't anything to fret about.

The Analyst

Analyst Joseph Moore reiterated an Overweight rating on Nvidia with a $273 price target.

The Thesis

The weakness in the card market is due to price hikes triggered by the crypto shortage, which shouldn't be an issue for Nvidia's prices, Moore said in a Tuesday note. (See the analyst's track record here.) 

Channel pullbacks are normal ahead of a new product launch, which could occur in late August as older products sell poorly due to inventory clearance, the analyst said. 

Moore said he expects Turing, Nvidia's next-gen graphics card architecture, to be announced at Gamescom in late August, and the analyst projects a strong adoption cycle.

Although Advanced Micro Devices, Inc. AMD has gained about 12 points of revenue share in the last six quarters, thanks mainly to price hikes, Moore said he expects a strong rebound in Nvidia's market share.

This expectation is based on Nvidia's new product launches, a disappointing high-end Vega representation from AMD and no real competitive response from AMD in the next 12 months, Moore said.

Hash rates in the February-April period rose 20 percent, implying that upside to AMD and Nvidia's crypto exposure is unlikely, the analyst said. 

"NVIDIA's view that the market would decline by 65 percent quarter-over-quarter, more cautious than AMD's view, seems appropriate to us." 

The timing of new product transitions could prove to be a tactical concern and limit near-term upside, Moore said — but the analyst sees the bigger picture for Nvidia as compelling.

"Ray tracing" technology in gaming, new gaming products, hypergrowth in the market for machine learning training in data center and traction in higher levels of ADAS are opportunities for Nvidia, according to Morgan Stanley. 

Despite the expensive stock valuation and uncertainty ahead of product launches, the firm said Nvidia is "the cleanest growth story in semis, with a major product cycle ahead."

The Price Action

Nvidia shares have jumped about 28 percent year-to-date.

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