Morgan Stanley changes its Nvidia position for the rest of 2026

Core Viewpoint - Morgan Stanley has reinstated Nvidia as its top semiconductor pick, replacing Micron Technology, following significant gains in memory stocks [1] Company Performance - Nvidia's stock closed at $177.19 and rose approximately 3% to $182.94 after the announcement, despite being down about 3% year-to-date in 2026 [2] - The firm maintains an Overweight rating with a price target of $260, indicating a potential upside of about 47% from the recent close [3] - Nvidia reported record quarterly revenue of $68.1 billion, a 73% year-over-year increase, surpassing Wall Street's expectation of $66.2 billion [7] - For fiscal 2026, Nvidia achieved $215.9 billion in revenue, up 65% from the previous year, with net income exceeding $120 billion and free cash flow at $97 billion [8] Market Dynamics - Moore attributes Nvidia's stock stagnation to investor concerns about the peak of its growth cycle in 2026 and competition from custom chips [4] - Hyperscalers are projected to spend over $660 billion on AI infrastructure in 2026, nearly double the $443 billion spent in 2025 [12] - Nvidia holds approximately 85% of AI processor revenue, with competitors like AMD below 5% and custom ASICs just above 10% [12] Future Outlook - Nvidia's Q1 guidance suggests expected revenue of around $78 billion, exceeding analysts' expectations of $72.6 billion, with no data center revenue from China included in this outlook [9] - The upcoming GTC conference is anticipated to address market share concerns and provide insights into the Vera Rubin platform roadmap, which is expected to enhance performance significantly [10][11] - Moore believes that Nvidia's stock typically experiences sharp increases once visibility into its earnings trajectory improves, similar to patterns observed in previous years [13] Competitive Landscape - While Nvidia is projected to maintain 70% to 75% of the AI accelerator market through 2030, custom ASIC shipments are growing faster than GPUs [14] - Moore acknowledges potential market share loss for Nvidia in 2026 but emphasizes that it remains the preferred choice in most deployments [15] - The structural advantage of Nvidia's ecosystem, including its CUDA software platform and NVLink interconnects, creates significant switching costs for competitors [16] Investment Implications - Morgan Stanley's upgrade reflects a belief that the market has been overly pessimistic about Nvidia's durability at a critical time, with significant spending on AI infrastructure and upcoming product launches [17] - The stock has been building a base while the business strengthens, with confirmed Vera Rubin systems from major clients like Microsoft and Google [18]