NVIDIA's Future Brightens Amid AI Demand Surge Despite H20 Challenges

In recent analyses, Morgan Stanley has stressed that despite challenges posed by "H20 sales restrictions," it is the burgeoning demand for AI inference that will be fundamental to NVIDIA's growth trajectory. They suggest that revenue for the current quarter is expected to reach $422 billion—short of the $430 billion guidance—as a result of H20-related revenue declines ranging between $40-50 billion.

The firm highlights that while short-term financial pressures due to the H20 export policy could present income setbacks, potentially cutting NVIDIA's revenue by approximately $50 billion, the explosive growth in AI inference demand coupled with improvements in Blackwell architecture supply are critical drivers for future performance. This shift could indicate an acceleration turning point in NVIDIA’s performance for the latter half of the year.

Insights from Morgan Stanley's research suggest that Blackwell architecture supply constraints have been easing. The primary suppliers, handling roughly 90% of the machine racks, have increased monthly production, which marks a significant positive change. The increase in rack production is anticipated to continue growing throughout the year.

The analysts propose that market participants might be underestimating the significance of the AI inference demand surge as a long-term growth factor for NVIDIA. Major cloud providers have reported unexpectedly high growth in AI computational unit usage, reflecting an increased real-world invocation of AI models, fortifying the sustainable revenue potential for NVIDIA.

Morgan Stanley maintains their "overweight" stock rating for NVIDIA and a target price of $160, representing roughly a 21% upside from the current valuation. Despite prevailing concerns over medium-term challenges such as supply chain constraints and market adjustments, these factors are being systematically resolved, paving the way for NVIDIA's robust comeback to growth in the latter half of the year.