Nvidia Corp. ’s valuation has “shifted into the stratosphere on near-term numbers,” but Morgan Stanley still sees the stock as an attractive way to play the semiconductor landscape. Morgan Stanley’s Joseph Moore upgraded the shares from equal weight to overweight late Thursday, cheering the opportunities brought by the excitement surrounding generative artificial intelligence. That’s the type of AI popularized by OpenAI’s ChatGPT chatbot, whose popularity has encouraged companies across industries to explore AI tie-ins in their own businesses.
Read more: Tech executives haven’t just started talking about AI — but they’re talking about it a lot more Nvidia NVDA, +1.78% can help power these applications, one reason Moore is even more excited about the name. “The high capital intensity of these workloads, especially on the training side, is now a major part of the calculation for the technology’s biggest companies, with NVIDIA’s dominance of the training market likely to continue for many years,” he wrote. . Read: As chip sales dry up, Nvidia CFO says spending on AI will save companies money Moore was previously on the sidelines at Nvidia as he worried about data-center and gaming trends. He wrote Thursday that that dynamic “has largely played out,” adding that “the development of traditional AI is too much of a megatrend to distract from strategic concerns.” The excitement around big-language models that use machine learning to understand language, he added, “is turning into strong spending, both in the near term and in the long term.” Don’t miss: Nvidia’s stock-market hot streak is far from over, according to Wall Street analysts Moore addressed what he considered a stratospheric valuation for the stock, which he said “trades at a P/E premium to our entire universe.” But he also noted that “the overall semiconductor group has reached an uncomfortable point that there are few bargains in areas with long-term growth potential even as conditions remain difficult.” When thinking about trends on a five-year basis, Nvidia’s stock is still expensive, “but not dramatically relative to peers,” he argued. There’s also potential for Nvidia to win at the expense of the rest of the computing world, he reasoned, as companies face budget pressures but recognize the importance of investing in AI. “Cloud vendors are always going to cut costs on traditional workloads to fund smarter AI models,” Moore wrote. Read: OpenAI launches ‘safe’ AI, GPT-4; Morgan Stanley was one of his first clients He raised his price target on the stock to $304 from $225, up 1.3% in Friday morning trading. Shares of Nvidia have rallied 77% so far this year, as the S&P 500 index SPX, -0.89% has gained 2%.