NVIDIA Navigates Export Uncertainty with Strong Chip Demand and Promising Outlook

Recent updates from Morgan Stanley suggest that NVIDIA is witnessing an upswing in the demand for its Hopper chips, alongside promising developments in its GB200 project. Despite these positive indicators, looming export control policies pose a significant source of uncertainty for the company’s performance guidance, which might appear conservative to stakeholders.

Analysts at Morgan Stanley uphold a strong fundamental outlook for NVIDIA, noting that the company's prospects have grown more optimistic over the past two months. However, they caution that ongoing concerns regarding potential export restrictions could overshadow this optimistic sentiment. These restrictions are likened to a "Sword of Damocles," casting uncertainty over NVIDIA's future trajectory.

While NVIDIA’s forthcoming earnings report is eagerly awaited, Morgan Stanley analysts note that the company’s performance outlook will likely align with market expectations, reflecting the growth trajectory seen in the previous quarter. This expectation stands firm despite prior concerns regarding the demand trajectory for NVIDIA’s Hopper sales, which appear to have subsided with recent recovery in chip demand, particularly from cloud service providers.

Morgan Stanley’s evaluation highlights that NVIDIA's next-generation Blackwell chips are also on track, overcoming key technical challenges. Nevertheless, they caution that certain restrictive issues remain, and suggest that revenue recognition for these advancements shouldn’t be immediately expected.

On the financial front, NVIDIA's gross margins are largely anticipated to meet initial forecasts. Although early returns from the Blackwell chips might prove variable due to introduction challenges and inventory clear-out related to export guidelines, the firm believes that overall profitability will align closely with their predictions.

Looking ahead, Morgan Stanley maintains an "overweight" rating for NVIDIA, with a targeted stock price projection of $152 per share, signaling a potential upside from its current trading price. The company is positioned to potentially enhance its performance expectations in subsequent quarters, as it navigates through the export control issues, possibly achieving a favorable momentum in the latter half of the year.

NVIDIA is scheduled to release its earnings report post-market hours on February 26, and this has generated noticeable investor interest, as reflected by the pre-market rise in NVIDIA's stock valuation.