Nvidia stock upgraded as AI deemed ‘too much of a megatrend’ to ignore

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Nvidia Corp. The valuation “has gone into the stratosphere on the near-term numbers,” but Morgan Stanley still sees the stock as an attractive way to play the semiconductor landscape.

Morgan Stanley’s Joseph Moore upgraded the shares from equal weight to overweight late Thursday, citing opportunities excited by the excitement around generative artificial intelligence. OpenAI’s ChatGPT is the type of AI popularized by chatbots, the promotion of which has led companies across all industries to seek AI tie-ins within their own businesses.

Read more: Not only have tech experts started talking about AI – but they’re saying a lot more about it

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could help power these applications, one reason Moore is feeling more excited about the name.

“The high capital intensity of these workloads, especially on the training side, is now a major part of the compute for the largest companies in technology, with NVIDIA holding a dominance in the training market that is likely to continue for many years,” he added. wrote .

Read: As chip sales dry up, Nvidia CFO says spending on AI will save companies

Moore previously sided on Nvidia because he was concerned about data-center and gaming trends. That dynamic has “played out to a great extent,” he wrote Thursday, with “the development of tactical AI being too much of a megatrend to be distracted from strategic concerns.”

He said the enthusiasm for large language models, which use machine learning to understand language, “is turning into strong spending in both the near term and the long term.”

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Moore addressed the stratospheric valuation for the stock, which he said is “trading at a P/E premium to our entire universe.” But he also said that “the overall semiconductor group has reached an uncomfortable point that there are few bargains in areas with long-term growth potential, even when conditions are tough.”

Thinking about trends on a five-year basis, Nvidia’s stock is still expensive, “but not dramatically out of line with peers,” he argued. There is also potential for Nvidia to win at the expense of the rest of the computing world, he argued, as companies face budget pressures but recognize the importance of investing in AI.

Moore wrote that “cloud vendors are always going to reduce spending on traditional workloads to fund smarter AI models.”

Read: OpenAI launches ‘safer’ AI, GPT-4; Morgan Stanley is one of its first clients

He raised his price target on the stock from $225 to $304, which is up 1.3% in Friday morning trading.

Nvidia shares have gained 77% so far this year, as the S&P 500 index SPX,
has increased by 2%.