MWelsh
Morgan Stanley made Nvidia (NASDAQ:NVDA) its top pick with a price target of $500 up from $450, replacing Advanced Micro Devices (NASDAQ:AMD).
Morgan Stanley analysts said the AI theme remains the most important aspect of current conditions, and only one company is in a position to beat and raise this year. As other stocks have seen substantial multiple expansion in the past three months, Nvidia has compressed given EPS upside.
The firm added that making Nvidia its top pick reflects significant potential for near term upside as the only company likely beating and raising due to AI in CY23. The analysts continue to be bullish on Nvidia’s 2024 AI opportunity, however, the top pick status is aimed to highlight near term upside, which is a bigger factor for Nvidia.
Thus the firm remains Over Weight on both stocks (Nvidia and AMD) but is shifting to Nvidia for its top pick.
The analysts added that they had made AMD their top pick in their 2023 Outlook, expecting the company’s server market share gains to steer outperformance within the group amid a backdrop of a difficult macro scenario and consumer end market inventory corrections.
Nvidia: Overweight rating
The analysts expect Nvdia’s Data Center business to drive much of the growth over the next five years, as enthusiasm for generative AI has created a strong environment for AI/ML hardware solutions — Nvdia being one of the most important. Meanwhile, incremental opportunities in AI/ML software and services, networking, and ADAS can steer growth even higher.
As channel inventory clears out and 40-series gaming product sees new demand, the firm does expect some upside to conservative gaming numbers and anticipates a return to more stable and sustainable +10% growth in gaming long-term.
AMD: Rating Overweight, price target $138 from $97
The analysts said that AMD continues to execute on its product roadmap while Intel attempts to regain its footing and provide long awaited server product. The analysts see further share gains for AMD in notebook and server processors in 2023 and 2024, offsetting industry-wide PC weakness and a likely gaming correction in 2023.
Marvell Technology (MRVL): Rating Equal Weight, price target raised to $68, from $55.
The firm noted that Marvell has an AI related opportunity, mainly the higher speed elements of the Inphi optical businesses (PAM4 and 400ZR), and longer term cloud custom silicon. The analysts expect this growth to play out, especially on the optical side, and they anticipate the company to outgrow data center spending overall.
The analysts remain Equal Weight on MRVL given valuation and high stock compensation expense which weighs on enthusiasm.
Intel (INTC): Equal Weight, price target upped to $38 from $31.
The analysts added that while they admires Intel CEO Patrick Gelsinger’s ambitious turnaround plan, and have noted in the past that it is not a quick fix, the capital spending plan needed to support new growth initiatives eliminates ex-dividend cash flow.
With a reduced dividend and valuation support, the analysts see limited downside at current levels with a path to return to more normalized earnings and better FCF generation.