Chelsea Jia Feng/BI
Nvidia's Blackwell chip will be the company's biggest story in 2025 — and the success of the next-gen GPU will overshadow any lingering 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 remained its "top pick" going into next year. The bank's bullishness is being fueled by the expected success of Blackwell — Nivida's next-gen artificial intelligence-enabling chip.
The bank issued a price target of $166 a share, implying a 23% increase from where the stock was trading on Friday around $134.82
"We have tended to be most enthusiastic on NVIDIA when the near-term data points appear mixed, but underlying dynamics are very strong. We think we are approaching that point now," the analysts wrote in a note. "There are transitional pressures — but by 2h25 the only topic will be the strength of blackwell, in our view."
Investors are already feeling bullish about the Blackwell chips, which are expected to launch in early 2025. Nvidia shares rallied earlier this year after CEO Jensen Huang said demand for the chip was "insane," boosting Wall Street's expectations for continued earnings growth.
The chip will likely be the "driving force behind revenue" in the second half of next year, which could mean "significant upside for the stock," Morgan Stanley added.
The success of its new chip could also dispel a handful of near- to medium-term anxieties investors have about the stock.
"We think there are a number of concerns here, some of which are overstated, some of which are anxiety-inducing short term but we believe irrelevant longer term," the bank said, highlighting four issues investors have been worried about in particular.
Investors are concerned about slowing builds for Hopper, Nvidia's current generation of AI chips. On its latest earnings call, the company forecast just 69.5% revenue growth for the fourth quarter, its slowest revenue forecast in seven quarters.
But the slowdown in Hopper builds is a "non-issue," Morgan Stanley said.
"The reason, of course, is that we are a few quarters until Hopper end of life. We would not correlate Hopper builds with Hopper revenue, which will persist for 3 more quarters or so, but there is a strong backlog of builds already coming through, so it's time to slow starts," analysts wrote.
Investors may also be concerned that not all of its Blackwell products will ship at the same time. Nvidia said would release seven variants of its Blackwell GPU.
"We are hearing anxiety about some of the types that aren't ready, and we aren't discounting that there may be some timing challenges with some of the product types," analysts said.
They continued: "All fair, but all of the Blackwells should get sold, even if this drives allocation from one customer to another, and we think that this persists all year. This is not a concern that should linger."
Concerns about Blackwell's rollout should "completely disappear" by the second half of next year, the bank said.
Analysts noted that Nvidia has seen some of its value being "directly" transferred into other chipmakers in recent months. The bank pointed to companies like Broadcom and Marvel, two firms that produce ASICs, which are custom AI chips that serve as an alternative to Nvidia's GPUs.
"But in 2025, we believe that the biggest users of ASICs will actually see purchasing shift back towards GPUs, based on conversations with those customers," Morgan Stanley said. "While our forecasts for both AVGO/MRVL ASIC revenue are largely conservative, as are our forecasts for GPU, we believe that GPU will meaningfully outperform ASIC this year."
The big AI chip customers are seeing benefits to scaling GPU cluster sizes, which allows for more advanced computing. But some financial backers in the space are raising questions about whether the returns of doing so are worth it, the bank said.
"Both constituencies matter, we can't rule out a consolidation in that portion of the market," analysts said. "But we note that many of the innovations that Nvidia has delivered in recent years are aimed at enhancing the efficiency of large clusters," they added, pointing to developments like Nvidia's acquisition of Mellanox, another chipmaker that will help it expand into the market for data center supplies.
"Even with any concerns about the AGI arms race cooling down the road, the growth in inference, the growth in sovereign training, the growth in enterprise training applications, and are all multi-year growth drivers, and make up 70% or so of data center revenue, so even with some consolidation in the arms race we should still see enduring growth potential," the analysts added.
Even after a 170% rally in 2024, forecasters are still generally bullish on Nvidia going into next year. The continued excitement around the AI trade in the stock market is among the top themes investors see shaping the stock market in 2025.
