NVIDIA's pre-earnings report: Morgan Stanley firmly bullish, focusing more on the explosion of inference demand; growth path for the second half of the year has been opened
Morgan Stanley maintains its rating on NVIDIA at "Overweight," with a target price of $160. Although the sales ban on the H20 chip to China may impact short-term performance, first-quarter revenue is expected to be $42.2 billion and $43.5 billion for the second quarter. Analysts believe that if management can improve supply and accelerate growth, short-term factors will become less significant. NVIDIA has a close relationship with the U.S. government and may restore some H20 business
According to Zhitong Finance APP, artificial intelligence chip giant NVIDIA (NVDA.US) will announce its Q1 results for fiscal year 2026 after the U.S. stock market closes on Wednesday. This latest earnings report from NVIDIA is the most anticipated one in this earnings season for U.S. stocks. According to analyst consensus expectations, NVIDIA's Q1 revenue is expected to be $43.3 billion, compared to $26 billion in the same period last year; adjusted earnings per share are expected to be $0.88, compared to $0.61 in the same period last year.
As NVIDIA is about to release its Q1 earnings report, Morgan Stanley released a research report on May 27, stating that although the sales ban on the H20 chip to China may have negative impacts, if NVIDIA's management can convince investors that the supply of Blackwell (including rack and non-rack versions) is continuously improving and will see accelerated growth in the second half of the year, then these short-term factors will no longer be important. Morgan Stanley stated that NVIDIA remains its preferred semiconductor stock, maintaining an "overweight" rating on the stock with a target price of $160.
Morgan Stanley believes that the sales ban on the H20 chip to China has had a significant impact on NVIDIA, and the $5.5 billion impairment confirms this. The firm estimates that the sales ban will lead to a revenue loss of about $1 billion for NVIDIA in Q1 of fiscal year 2026 (23 days of impact) and about $5 billion in Q2.
Morgan Stanley stated that NVIDIA has no products that can fully replace the H20. Although NVIDIA is actively lobbying for permission to resume H20 sales to China, it is unlikely to have a clear outcome in the short term. There are also rumors that NVIDIA is planning to launch new AI chips for the Chinese market, but it is currently unclear when they will be delivered, and market demand is also uncertain. The firm also added that NVIDIA seems to have a close relationship with the highest levels of the U.S. federal government, and at least a portion of the H20 business may be restored.
Morgan Stanley stated that its model has accounted for the impact of the H20 sales ban to China, thus expecting NVIDIA's Q1 revenue to be $42.2 billion and Q2 revenue to be $43.5 billion. The firm noted that the market's general expectation for NVIDIA's Q2 revenue is $47 billion, which means that excluding H20 business, the revenue growth quarter-over-quarter is over 30%, which is unlikely.
Additionally, Morgan Stanley stated that it has been monitoring the production issues of the GB200 rack since the beginning of the year, and since February, more and more signals indicate that "the core issues have been resolved." The firm stated that data shows NVIDIA's three major original design manufacturers (ODMs) delivered about 1,500 GB200 racks in April, and this number is expected to continue to grow for the remainder of the year. Although some original equipment manufacturers (OEMs) and hyperscale customers have not yet received enough GB200 racks, the firm believes that solutions are being advanced.
It is reported that the number of racks reflects the capacity and delivery capability of the GB200. For example, a single rack may integrate multiple GB200 chips, and an increase in rack shipments means that more chips are being deployed to data centers.
Morgan Stanley stated that while it does not separately forecast the shipment volume of GB200 racks, the claim that NVIDIA will be unable to deliver 20,000 GB200 racks for the entire year is overly pessimistic. The current monthly delivery pace has reached an annualized level of 18,000 units, and all three major ODMs are predicting a rapid ramp-up Morgan Stanley also pointed out that many clients are not yet ready to deploy liquid cooling or ARM-based ecosystems, so they are procuring traditional products like the B200 to meet inference needs. Additionally, Morgan Stanley added that market concerns about the GB300 are overstated, and the GB300 will be launched later this year, with no significant difference whether it launches in Q3 or Q4. Currently, there are no direct competitors to the GB200, and NVIDIA has also encouraged clients to focus on ramping up GB200 production since February.
Morgan Stanley emphasized that for NVIDIA, the explosive growth in inference demand is the most important long-term variable, as every hyperscale client has reported inference demand growth far exceeding expectations. Morgan Stanley stated that its confidence comes not only from these statements but also from consistent feedback across all industry chain interviews—demand for inference far exceeds expectations, and the market is eager to add GPUs. In the case where the GB200 cannot meet demand, clients are requesting cloud service providers to expand capacity for Hopper and B200.
Overall, Morgan Stanley stated that short-term risks have been fully reflected, and the firm clearly sees a growth path opening up for the second half of the year. The firm maintains NVIDIA as its preferred semiconductor stock, with an "Overweight" rating, and added that if NVIDIA can clearly express confidence in the improvement of Blackwell supply and the explosive growth of inference demand during the earnings call, even if the first quarter performance numbers themselves do not significantly exceed expectations, the stock price will still perform well.
