On Thursday, Morgan Stanley (NYSE:MS) maintained its Overweight rating on NVIDIA (NASDAQ:NVDA) stock and increased the price target to $168 from $160. The firm's analyst pointed out that while short-term gross margins might be lower, they are projected to recover and surpass previous estimates during the significant Blackwell product ramp-up.
The analyst's optimism for NVIDIA is rooted in the current strong AI cycle, noting that NVIDIA's stock appears less expensive compared to other companies benefiting from AI, despite the ongoing cyclical pressures affecting the semiconductor sector. This perspective is reinforced by the high investor enthusiasm for the company's prospects throughout the calendar year 2025.
Morgan Stanley's revised price target is based on a multiple of 42 times the mid-week earnings per share estimate for the calendar year 2025, which has been adjusted to $3.99. This adjustment leads to the new target of $168, up from the previous $160. The 42 times multiple is just under the 40 times new non-GAAP estimate of $4.21 per share, and slightly below the trailing five-year average next twelve months price-to-earnings ratio of 40.6 times.
The analyst emphasized the strong visibility into NVIDIA's Blackwell ramp and the firm's high conviction in NVIDIA relative to its peers. This positive outlook comes despite a reduction in the upside to the price target due to the recent appreciation in the stock's value.
In conclusion, Morgan Stanley's updated assessment reflects their continued confidence in NVIDIA's performance and potential in the AI market, supported by the anticipated success of the Blackwell ramp and the company's competitive positioning within the semiconductor industry.
In other recent news, NVIDIA's recent financial performance has been marked by significant developments. The company's third fiscal quarter of 2025 witnessed a record-breaking total revenue of $35.1 billion, a 94% increase from the previous year, largely attributed to robust demand for AI infrastructure. NVIDIA's outlook for the fourth quarter ending in January met expectations with a forecast of $37.5 billion in revenue.
However, the company anticipates a temporary dip in gross margins due to the early ramp-up of their Blackwell architecture, which is expected to recover later in the year.
Several analysts' firms have maintained positive ratings on NVIDIA and adjusted their price targets. Evercore ISI nudged its price target up to $190, while BofA Securities, Barclays (LON:BARC), Jefferies, Wedbush Securities, and Truist Securities have also issued favorable ratings and price targets. These adjustments follow NVIDIA's recent updates on the progress of its Blackwell product and the resolution of potential concerns.
The company has addressed investor concerns, particularly regarding the scaling of Large Language Models (LLMs), and reassured stakeholders about its production capabilities. NVIDIA's Blackwell production is in full swing, with January quarter shipments expected to surpass previous forecasts. These recent developments underscore NVIDIA's strong financial performance and strategic position within the rapidly expanding AI industry.
InvestingPro Insights
NVIDIA's strong position in the AI market, as highlighted by Morgan Stanley's analysis, is further supported by real-time data from InvestingPro. The company's impressive financial performance is evident in its revenue growth of 194.69% over the last twelve months, with a remarkable gross profit margin of 75.98%. These figures align with Morgan Stanley's optimistic outlook on NVIDIA's potential in the AI sector.
InvestingPro Tips reveal that NVIDIA has a perfect Piotroski Score of 9, indicating strong financial health. This score, combined with the fact that 11 analysts have revised their earnings upwards for the upcoming period, reinforces Morgan Stanley's confidence in the company's future performance.
The current P/E ratio of 67.04 might seem high at first glance, but when considered alongside the PEG ratio of 0.16, it suggests that NVIDIA is trading at a low P/E ratio relative to its near-term earnings growth potential. This aligns with Morgan Stanley's view that NVIDIA's stock appears less expensive compared to other AI beneficiaries.
For investors seeking a more comprehensive analysis, InvestingPro offers 22 additional tips for NVIDIA, providing a deeper understanding of the company's financial health and market position.
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