How to view the "most important financial report in the universe"? Morgan Stanley: Not worried about NVIDIA's performance, but the guidance

Global attention! "The most important financial report in the universe" NVIDIA's earnings report is about to be released. Morgan Stanley believes that NVIDIA's fundamentals remain strong, even more optimistic than two months ago. However, the "Sword of Damocles" of export controls hangs high, casting a shadow over NVIDIA's prospects.

On February 24, Morgan Stanley analysts Joseph Moore, Mason Wayne, and others released a report stating that in the past two months, demand for NVIDIA's Hopper has increased, and progress has been made with the GB200. However, due to potential further export controls, they maintain a cautious outlook on NVIDIA's performance guidance, believing it will likely align with market consensus and match the growth trend of the previous quarter.

Hopper Demand Rebounds

A few months ago, there were concerns in the market about Hopper sales, believing that demand was slowing, and the early development of Blackwell, especially in the form of GB200, faced difficulties. However, Morgan Stanley stated that they are now more reassured about both issues.

According to Morgan Stanley's survey, although slightly weaker compared to the previous quarter, overall demand for Hopper has rebounded. Morgan Stanley noted that demand for Hopper chips among cloud service providers remains strong, although some demand may be due to "some international customers placing orders in advance due to concerns about future export controls, setting aside worries about economic lifespan." Nonetheless, the overall improvement in demand provides strong support for NVIDIA's performance.

The H20, H100, and H200 have shown strong performance. Morgan Stanley pointed out that recent rumors about H20 price cuts may be outdated, as pricing seems to be fine. Morgan Stanley also stated:

"While advance purchasing is not the best source of demand, considering that Hopper production is about to naturally conclude, this is a good transition, building a bridge for Blackwell to achieve strong performance in the second half of the year."

GB200 Progressing Smoothly, Key Issues with Blackwell Resolved

NVIDIA's next-generation chip Blackwell has also made significant progress. Morgan Stanley noted that the "unprecedented complexity" of the Blackwell system emphasized by management remains an issue, but the biggest technical challenges have now been resolved, the GB200 has overcome difficulties, and production is expected to gradually recover, with the market likely to start seeing an increase in rack numbers.

However, Morgan Stanley also warned that some restrictive issues still exist, and given the multifaceted design of the GB200, one should not immediately convert Blackwell CoWoS numbers into revenue.

Gross margins are also generally in line with expectations. Although Blackwell's initial yield is low and the high H20 mix ratio due to inventory clearance from export control issues, Morgan Stanley believes that overall, it is roughly in line with the company's guidance, expecting profit margins to be consistent with the guidance. With the improvement in Hopper chip demand and the advancement of the Blackwell series:

"We expect that NVIDIA's data center business will continue to be the main driver of the company's growth over the next five years, especially with the push from generative artificial intelligence, NVIDIA's GPU solutions will become key in the market Blackwell will be more widely listed later in 2025, which will further consolidate its competitive position and achieve higher dollar value through a larger system sales portfolio.

Cloud of Export Controls Looms, Performance Guidance May Become Conservative

The report also pointed out that all of this points to a strong start this year, but potential export control policies will become the biggest uncertainty factor for the company's performance guidance, which may trend towards conservatism:

"Although NVIDIA's customers may circumvent restrictions by purchasing products with performance below the limits or training overseas, future export controls may tighten further with the success of AI models like DeepSeek."

Morgan Stanley stated that NVIDIA's current quarter is a transition quarter, and quarterly revenue may align with market expectations, around $42 billion, and the company may gradually raise performance expectations in subsequent quarters, "Once export controls are passed, there will be positive momentum in the second half of the year." Analysts maintained an "Overweight" rating on NVIDIA and set a target price of $152 per share, about 13% higher than the current stock price.

NVIDIA's financial report will be released after the U.S. stock market closes on February 26. In pre-market trading today, NVIDIA rose over 1%, closing at $134.43 yesterday.