Recently, the AI frenzy has reignited, with nvidia achieving a "five-day increase", the stock price is just a step away from the new high. The new narrative of "AI story" - the growth in reasoning power demand is opening up the demand space for nvidia chips.

On Tuesday this week, the leading computing power nvidia held a three-day AI roadshow in New York. CEO Huang Renxun, CFO Colette Kress and other members of the management team attended. As expected, the management team is enthusiastic about both the short-term and long-term prospects of AI, especially in the innovation and expansion of AI computing, emphasizing substantial growth in the future.

Nvidia's management stated that we are still in the early stages of the AI cycle. With the release of the OpenAI o1 model, a new AI narrative is unfolding, shifting towards solving more complex reasoning problems. This will increase the demand for hardware configurations, and nvidia's upcoming rack products are the best solution.

The long-term vision of AI is that deep thinking will allow every company in the world to hire a large number of "digital AI employees" capable of performing challenging tasks.

In response, Morgan Stanley pointed out in the report:

The complexity and demand for reasoning computing are growing exponentially, especially for task-oriented reasoning demands, which bring new growth opportunities for nvidia. Nvidia's full-stack solution has significant advantages in solving such complex problems.

In the short term, the progress of the Blackwell product line is proceeding as planned, with products sold out within the next 12 months, indicating strong market demand. Nvidia expects a strong performance in 2025 and sees 2026 as the early stage of a long-term investment cycle.

The reasoning computation will experience exponential growth with 'deep thinking'.

According to Morgan Stanley, the management has mentioned OpenAI's new model o1 multiple times, which requires longer 'thinking' time during reasoning.

During the meeting, Huang Renxun often mentioned the recently released o1 model by OpenAI, which can generate a series of thoughts before responding to queries. The output from the model without delay constraints allows the model to 'think' for as long as possible before responding. OpenAI has not explicitly stated the cost difference of o1 inference, but some sources suggest that the cost may be around 10 times compared to GPT-4.

For Nvidia's growth story, the bigger picture is that Nvidia is excited about the capabilities that models trained on Blackwell or Rubin systems will be able to achieve in the next two to three generations. For reasoning computation, in order to serve a GPT-6 level model with these advanced features under low latency, it may require significantly more computational power than the leading-edge level we currently think.

Furthermore, Morgan Stanley states that Nvidia's long-term vision over the next decade is for companies to have thousands of 'digital employees' to perform complex tasks - such as programmers, circuit designers, marketing project managers, legal assistants, etc. The enhancement of reasoning computation will require more sophisticated hardware, with Nvidia's Blackwell system, especially the rack-level system, being considered a breakthrough technology.

Nvidia's market share is expected to continue growing in 2025.

Morgan Stanley's report also points out that reasoning computation will experience exponential growth, which means a significant increase in demand for reasoning hardware, providing long-term bullish prospects for Nvidia's business.

Nvidia positions Blackwell - especially at the rack scale level - as a breakthrough technology to address these issues. Blackwell brings a more powerful processor to the AI market, but the most important innovation may come from the GB200 system, which introduces the Grace CPU into the system and more complex NVLink chip connections, allowing each GPU in a rack of 36 or 72 GPUs to collaborate with all other GPUs simultaneously, placing all GPUs in the same NVLink domain and greatly enhancing the ability to treat the entire rack as a huge GPU.

In the short term, the Blackwell product line is progressing as planned, with products for the next 12 months already sold out, indicating strong market demand and suggesting a continued high growth trend for shipments for the full year. In 2024 and 2025, nvidia's AI processor market share may increase, and the shipment trend is expected to continue to grow.

Regarding recent nvidia stock performance, morgan stanley stated that they still bullish on nvidia's long-term prospects, rating it 'overweight' with a target price of $150. However, they acknowledge that with the rebound in stock price, there is some increase in profit expectations in the short term.

When consensus shifts to the very high 2025 fiscal year expectations, debates at our current position often turn to the 2026 fiscal year and beyond. While we remain bullish on the long-term outlook, these debates are more challenging to resolve.

The company's performance has significantly exceeded their guidance every quarter, with gross margin exceeding the guidance by 1 percentage point or more, which has become the norm. At some point, the extent of the increase may rise, and there are indications that there may be more upside potential this quarter.

Editor/new