Morgan Stanley said NVIDIA’s Blackwell chips will gain traction in 2025, dispelling lingering concerns. Strategists said they expect other noise to fade by mid-2025, pushing the stock up another 20%. The bank named Nvidia as its “top candidate” for next year.
Nvidia’s Blackwell chips will be the biggest story for the company in 2025. And the success of next-generation GPUs should erase any concerns investors may still have, Morgan Stanley said.
In a note this week, the bank reiterated its “overweight” rating on Nvidia stock and said the chipmaker remains a “top pick” for next year. The bank’s bullish stance is fueled by the anticipated success of Nivida’s next-generation artificial intelligence-enabled chip, Blackwell.
The bank has a price target of $166 per share, implying a 23% upside from Friday’s share price of around $134.82.
“We’ve tended to be most enthusiastic about NVIDIA when near-term data points look mixed, but the underlying dynamics are very strong. We’re approaching that point now. thinking,” the analyst wrote in a note. “There will be pressure in transition, but in our view by 2 hours 25 minutes the only talking point will be Blackwell’s strength.”
Investors are already feeling bullish about the Blackwell chip, which is expected to launch in early 2025. Nvidia shares rose earlier this year after CEO Jensen Huang said demand for the chip was “insane,” with Wall Street praising continued profit growth. Expectations have increased.
The chip is likely to be a “revenue driver” in the second half of next year, which could mean “significant stock price appreciation,” Morgan Stanley added.
The success of the company’s new chip could also dispel some of the near-to-medium-term concerns investors have about the company’s stock.
“We believe there are a number of concerns here, some of which are exaggerated and cause concern in the short term, but which we believe are irrelevant in the long term,” the bank said. He highlighted four issues of particular concern to investors.
1. Decrease in hopper production rate
Investors are concerned that builds of Nvidia’s current generation AI chip, Hopper, will be slow. In its latest earnings release, the company expected fourth-quarter sales growth to be only 69.5%, the lowest sales forecast in seven quarters.
But Morgan Stanley said the slowdown in hopper production was “not an issue.”
“The reason for that, of course, is that Hopper is only a few quarters away from end of life. I’m not going to correlate Hopper builds with Hopper revenue. We’ll see that revenue for another three quarters or so, but we already have a huge backlog of builds. ‘So it’s time for a slow start,’ the analysts wrote.
2. Blackwell variants are not shipped together
Investors may also be concerned that not all of Blackwell’s products will ship at the same time. Nvidia has announced that it will release seven variations of its Blackwell GPU.
“We have heard concerns that some product types are not ready, and we do not discount the possibility of timing issues for some product types,” the analysts said. .
They went on to say, “All things being fair, even if this facilitates allocations from one customer to another, Blackwell should be sold in its entirety, and we believe this will continue throughout the year. “This is not a lingering concern.”
Concerns about Blackwell’s business development should “completely dissipate” by the second half of next year, the bank said.
3. Competitors eat up Nvidia’s value
Analysts said Nvidia has seen some of its value transferred “directly” to other chipmakers in recent months. The bank pointed to companies like Broadcom and Marvel that make ASICs, custom AI chips that serve as replacements for Nvidia’s GPUs.
“However, based on our conversations with customers, we believe that in 2025, the largest user purchases of ASICs will indeed shift back to GPUs,” Morgan Stanley said. “Our forecasts for both AVGO/MRVL ASIC revenues are broadly conservative, as are our GPU forecasts, but we believe GPUs will significantly outperform ASICs this year.”
4. Demand for chips is decreasing
Leading AI chip customers are benefiting from expanded GPU cluster sizes to enable more advanced computing. But some financial backers of the sector have raised questions about whether the benefits of doing so are worth it, the bank said.
“Both constituencies are important and we cannot rule out the possibility of consolidation in that part of the market,” the analysts said. “However, we note that many of the innovations Nvidia has delivered in recent years are aimed at increasing the efficiency of large clusters,” they add, pointing to developments such as Nvidia’s acquisition of Mellanox, He pointed to Mellanox, another chipmaker that will help Nvidia expand into the market. Data center supplies.
“Despite concerns that the AGI arms race will subside in the future, growth in inference, growth in sovereign training, and growth in enterprise training applications have all been drivers of growth over the years, accounting for around 70% of the total. “Data center revenues are so large that even if the arms race intensifies to some extent, we should still see the potential for sustained growth,” the analyst added.
Even after a 170% rally in 2024, forecasters are still bullish on Nvidia heading into next year. The continued excitement surrounding AI trading in the stock market is one of the biggest themes investors see shaping the stock market in 2025.
