In this wave of selling off American tech stocks,$NVIDIA (NVDA.US)$As the leader of GPU, Nvidia's stock price has also retraced a lot. This week's stock price is like a roller coaster. It fell 7% on Tuesday, then rose nearly 13% on Wednesday, and then fell 6% again on Thursday... The stock price has fallen by more than 19% since its high in July.

Morgan Stanley ignored Nvidia's recent decline in stock price and expressed bullishness on Nvidia in a research report released on July 31, pointing out that due to Nvidia's strong chip product sales, clear prospects for new products in the future, and negative impacts such as market-overstated industry competition will fade over time, the recent price correction of Nvidia will provide a good entry point. Morgan Stanley still strongly bullish on Nvidia's future stock price performance and maintain a "shareholding" rating. Influenced by this news, Nvidia's stock price soared nearly 13% at the close on Wednesday.

So why does Morgan Stanley continue to be bullish on Nvidia?

Because Morgan Stanley believes that the current market concerns about Nvidia mainly focus on excessive capital expenditure in the AI industry and intense industry competition, and these negative impacts will weaken over time. After all, Nvidia's GPU product advantages still exist.

The reasons why Morgan Stanley is bullish on Nvidia are:

1. The demand for Nvidia's GPU products in the future will gradually shift from Hopper to Blackwell. During the transition period, the sales of H100 and H200 GPU products based on the Hopper architecture are still strong and can support Nvidia's revenue.

Obviously, the Hopper architecture GPU products are at the end of the cycle, and with technological progress and product updates, market demand will shift from Hopper-based products to the next-generation Blackwell architecture products.

As the product demand shifts, the limitations of the supply chain will also change: it may change from insufficient GPU production capacity to insufficient supply of silicon materials (that is, raw material supply may become a new bottleneck).

2. The enthusiasm of major tech companies for the new Blackwell architecture GPU products is still high, making Nvidia's future revenue prospects more clear.

Nvidia's Blackwell new product has greatly improved the inference performance compared to the previous generation of products, increasing its attractiveness to customers.

Despite the complexity of Blackwell and bundle machine, it may bring challenges to the supply, but Nvidia's capacity expansion progress seems to be progressing smoothly at present.

We expect that the first batch of Blackwell products will have a considerable shipment volume by October, but by early 2025, Hopper architecture GPU products will still be Nvidia's main source of revenue.

Morgan Stanley: Nvidia's recent price decline may be related to several major risks below, but there is no need to worry too much!

Morgan Stanley is very bullish on Nvidia and pointed out that Nvidia's recent stock price decline may be related to the following major risks, but the negative impacts of these risks will weaken over time.

The first major risk: large tech giants significantly increase AI capital expenditures, but cannot receive proportional investment returns from AI investments.

We have seen that AI capital expenditures around the world are continuing to rise, but Wall Street is not satisfied with the large increase in quarterly AI capital expenditures by tech giants, which has caused investors to sell off American tech stocks recently.

But to understand that large tech companies are facing various restrictions on land and power grid capacity increases as they increase AI investments, so capital expenditures are nonlinear.

Our surveys generally show that tech companies want to deploy GPUs as soon as possible. Even in the case of the upcoming new product Blackwell, the demand for Nvidia's H100 product is still stable. The previous concern that tech companies may reduce their demand for H100 products may be too much.

Second largest risk: Competitive ecology.

According to Morgan Stanley, artificial intelligence is a huge market. Only NVIDIA's GPU products cannot meet the needs of the entire market. Therefore, Amazon wants to build its own chips, and Apple also considers using Google's TPU to complete the key work of training large models, and AMD is also dividing GPU market, these competitions have put pressure on NVIDIA's stocks.

Fortunately, we have learned that many technology companies investing in customized chips or substitutes have returned to NVIDIA's embrace, and NVIDIA is still in a central position in the competition of artificial intelligence. We believe that this situation will not change temporarily.

Third largest risk: Supply chain problems.

Although NVIDIA is currently facing some supply chain concerns, such as the production capacity of HBM3e and the heat dissipation problem of GB200 rack products, NVIDIA is actively solving these problems, and positive signals for accelerated mass production of Blackwell products will occur in the second half of the year.

At the same time, Morgan Stanley pointed out another point to be vigilant: some of NVIDIA's ODM partners in Taiwan may be too optimistic about the future demand for GB200 products.

Some of the ODMs predict that the demand for GB200 product racks may reach 5 to 9 million next year, which may be a bit optimistic.

Calculating according to the assumption that each GB200 rack integrates an average of 54 GPUs, and assuming a demand of 0.7 million racks in the market, the price of each rack is about 400,000 US dollars (GPU 350,000 US dollars, CPU and switch about 5,000 US dollars), which will require 150 billion US dollars.

Therefore, we expect that NVIDIA's data center business revenue is unlikely to reach the optimistic level of 300 billion US dollars next year, but closer to 164 billion US dollars. If we exclude the revenue brought by Mellanox and gaming business, the revenue brought by processors is about 145 billion US dollars.

During this period, the biggest risk is still the fluctuation of revenue data. However, in the short term, these data will still support NVIDIA's stock price.

Fourth largest risk: Concerns about the macroeconomic environment and market valuation compression.

Morgan Stanley pointed out that the economic environment may be the most difficult factor to ignore:

Because cloud computing and high capital expenditure of GPUs depend on a strong risk appetite environment, if the global economy is weak, it will definitely affect expenditures. At that time, investors' valuation of the company may become more stringent, and it may affect investors' investment willingness in risk assets.

Finally, Morgan Stanley pointed out that there are many catalysts in the future that can boost NVIDIA's stock price, such as: upward revision of profit forecasts or performance expectations, more certain delivery time of Blackwell products, NVIDIA's strong response to the competition that arises in the market, and AI, this topic in the semiconductor industry, has made NVIDIA's business more attractive, etc.

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