Morgan Stanley goes against market consensus: market's excessive bias towards storage chips, now should focus on NVIDIA Corporation(NVDA.US)

Morgan Stanley released a research report, reclassifying NVIDIA Corporation (NVDA.US) as the top pick in the semiconductor sector, replacing the previous top pick Micron Technology, Inc. (MU.US). Analyst Joseph Moore wrote in a report to clients, "The game between storage chips and NVIDIA Corporation is quite interesting. The market generally believes that the business cycle reflected in storage stocks is longer and more sustainable than that of processor stocks; we do not completely agree with this. Through discussions with clients on storage chips and NVIDIA Corporation's business, we found that the current industry outlook for both sides is very strong. However, based on current valuations, the market tends to believe that storage chips have higher investment value, as they have more room for performance improvement. However, the market does not have strong confidence in the performance of these two stocks by 2027." Moore issued a "hold" rating for NVIDIA Corporation with a target price of $260. He further pointed out that the market's concerns about NVIDIA Corporation potentially losing market share may be alleviated at the upcoming GTC conference. "We cannot accurately predict what information will be released at the GTC, but the overall tone should be similar to 2024when NVIDIA Corporation fully disclosed its four-year product roadmap, and the market clearly understood that this competition is not just about the chips themselves, but also about the entire system architecture and ecosystem development," Moore explained. "We expect Groqs intellectual property to also play a role in this roadmap." The NVIDIA Corporation GTC conference is scheduled for March 16-19, and Jensen Huang will deliver a keynote address on March 16. Moore also stated that the tight supply situation for AI processors is expected to ease in the coming months, which will be a positive for NVIDIA Corporation. "It should be noted that this trend has not yet emerged, but considering that DRAM, eSSD, HDD, optical modules, microprocessors, and power supplies may all become more severe bottlenecks than processor capacity, this easing is entirely possible. This may pose a short-term challenge to NVIDIA Corporation's stock price, as 90% of industry research focuses on easily trackable supply chain indicators (such as CoWoS packaging capacity and delivery cycles), rather than actual demand," he added. "But we believe that this will drive NVIDIA Corporation's market share to accelerate once again, as seen in the scenario when GPU delivery cycles fell due to space and power constraints in 2024." While some opinions suggest that NVIDIA Corporation's "moat" has weakened, Moore is not worried. He cited recent research indicating that the two largest customers of the world's two largest application-specific integrated circuits (ASICs) and two potential core customers of AMD (AMD.US) are expected to increase their purchases of NVIDIA Corporation products by 80% or more by 2026.