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In this round of sell-off of US technology stocks, Nvidia, as the leader in GPU, has also experienced a significant correction. This week's stock price was more like a roller coaster ride, with a 7% drop on Tuesday, then a nearly 13% surge on Wednesday, and another 6% drop on Thursday... The stock price has fallen by more than 19% since its July high.

Morgan Stanley ignored Nvidia's recent stock price decline and released a research report on July 31 that was optimistic about Nvidia, pointing out thatAs Nvidia's current chip product sales are strong, and the prospects for new products are bright, and the negative effects of the market exaggerating industry competition will fade over time, Nvidia's stock price correction will provide a good entry point. We are still strongly optimistic about Nvidia's future stock price performance, and maintained its "overweight" rating. Influenced by this news, Nvidia's stock price rose nearly 13% at the close of Wednesday.

So why does Morgan Stanley continue to be optimistic about Nvidia?

Because Morgan Stanley believes thatAt present, the market's concerns about Nvidia are mainly focused on the excessive capital expenditure in the AI ​​industry and the fierce competition in the industry. However, these negative effects will weaken over time. After all, Nvidia's GPU product advantages are still。

The reasons why Morgan Stanley is optimistic about Nvidia:

1. Future developments for NVIDIA GPU productsDemand will gradually shift from Hopper to Blackwell, and during the transition period, the Hopper architectureSales of H100 and H200 GPU products remain strong and can support Nvidia's revenue.

It is clear that the Hopper architecture GPU products are at the end of their cycle. With technological advancement and product upgrades, market demand will shift from products based on the Hopper architecture to the next-generation Blackwell architecture products.
As product demand shifts, supply chain constraints 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. Large technology companies continue to show great enthusiasm for the new Blackwell architecture GPUs, making Nvidia's future revenue prospects brighter.

Nvidia's new Blackwell product has significantly improved the inference performance compared to its previous generation, making it more attractive to customers.
Although the complexity of Blackwell and combined racks may pose supply challenges, Nvidia's capacity expansion progress seems to be progressing smoothly.
We expect that by October, the first Blackwell products will be shipped in significant volumes, but by early 2025, Hopper architecture GPU products will still be Nvidia's main source of revenue.

Morgan Stanley: The recent decline in Nvidia’s stock price may be related to the following major risks, but there is no need to worry too much!

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

Risk 1: Tech giants significantly increase AI capital expenditures but fail to recoup a proportional return on investment

We see that AI capital expenditures continue to rise everywhere, but Wall Street has recently been dissatisfied with the tech giants' significant increase in quarterly AI capital expenditures, triggering investors' recent sell-off of U.S. tech stocks.
But it is important to understand that large technology companies are facing various land and grid power constraints as they increase their AI investments, so capital expenditures are nonlinear.。
Our survey generally shows that technology companies want to deploy GPUs as soon as possible. Even with the upcoming launch of the new product Blackwell, demand for NVIDIA's H100 products remains stable. Previous concerns that technology companies would reduce demand for H100 products may be unfounded.

The second biggest risk: competitive ecosystem

Morgan Stanley pointed out that artificial intelligence is a huge market, and Nvidia's GPU products alone cannot meet the needs of the entire market. Therefore, Amazon wants to build its own chips, and Apple is also considering using Google's TPU to complete the key task of training large models. AMD is also dividing up the GPU market. These competitions have put pressure on Nvidia's stock.

Fortunately, we've heard from many tech companies that have invested in custom chips or alternatives returning to Nvidia's arms, and Nvidia remains at the center of the AI ​​race, and we don't think this will change for a while.

The third biggest risk: supply chain issues

Although NVIDIA is currently facing some supply chain concerns, such as the production capacity of HBM3e and the heat dissipation of GB200 rack products, NVIDIA is actively solving the problems, and there are positive signs that Blackwell products will be accelerated in mass production in the second half of the year.

At the same time, Morgan Stanley pointed out another point that needs to be vigilant:Some of Nvidia's foundry partners (ODMs) in Taiwan may be overly optimistic about future demand forecasts for GB200 products。

Some ODMs predict that demand for GB200 product racks may reach 50,000 to 90,000 units next year, which may be a bit optimistic.
Based on the average 54 GPUs integrated into each GB200 rack, assuming the market demand is 70,000 racks and each rack costs about $40,000 ($35,000 for GPUs and about $5,000 for CPUs and switches), this will cost $150 billion.
Therefore, we estimate that Nvidia's data center business revenue is unlikely to reach such an optimistic level of US$300 billion next year, but will be closer to US$164 billion. If the revenue from Mellanox and the gaming business is excluded, the revenue from the processor is about US$145 billion.
The biggest risk during this period remains the volatility of revenue data. However, in the short term, these data will still support Nvidia's stock price.

The fourth 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 high capital expenditures for cloud computing and GPUs rely on a strong risk appetite environment, a weak global economy will certainly affect spending. At that time, investors may become more stringent in their valuations of companies and affect their willingness to invest in risky assets.

Finally, Morgan Stanley pointed out that there are many catalysts in the future that can boost Nvidia's stock price, such as: an upward revision of earnings forecasts or performance expectations, more certainty in the delivery time of Blackwell products, Nvidia's strong response to competitive concerns in the market, and in the semiconductor industry, the theme of AI makes Nvidia's business more attractive.