Morgan Stanley Reports Solid Demand for NVIDIA’s Hopper and Blackwell Chips Amid DeepSeek Margin Challenges

This article does not constitute investment advice. The author holds no positions in any stocks mentioned herein.

Analysts Weigh In on NVIDIA’s Upcoming Earnings

As NVIDIA nears its quarterly earnings announcement, the excitement among Wall Street analysts is palpable. A recent report from Citi acknowledged the company’s favorable valuation following a drop attributed to competition from DeepSeek, while Morgan Stanley has taken a decidedly more optimistic stance regarding NVIDIA’s potential stock performance in the near future.

DeepSeek’s Impact on the Market

China’s DeepSeek made headlines with its innovative R1 model, which competes aggressively against OpenAI’s o1, requiring only 1/50th of the typical costs associated with training a large language model (LLM).However, an analysis suggests that DeepSeek’s capital expenditures could have reached approximately $1.6 billion, with operating costs potentially nearing $944 million. This shift has sparked discussions surrounding efficiency and its implications for NVIDIA.

Morgan Stanley Maintains Bullish Outlook

Despite concerns, Morgan Stanley perceives NVIDIA’s recent downturn as a potential “buying opportunity.”They acknowledge the challenges posed by DeepSeek, citing increased “long-term uncertainties”for NVIDIA but believe these are manageable. The firm reports that demand for NVIDIA’s Hopper and Blackwell chips remains “solid”and expresses confidence in the company’s growth trajectory, especially with the anticipated resurgence in AI inference and ASIC technology in the latter half of 2025.

Risks and Market Sentiment

While the U. S.government’s tightening of chip export regulations concerning China presents a significant risk, Morgan Stanley asserts that NVIDIA is well-positioned to navigate these obstacles. The continued investment by major hyperscalers, including Microsoft, Google, Meta, and Tesla, who project high capital expenditures for 2025, further bolsters their positive outlook.

NVDA Jan-Q earnings due 2/26 post-market.

• Sales Forecast: Expected ~$38B for Jan-Q, $42.5B for Apr-Q with Blackwell ramp-up mid-year.

• Valuation: NVDA stock at mid-20s P/E, 25% below ASIC peers after sell-off on AI concerns.

• Outlook: Bullish despite recent range-bound… https://t.co/tQBwe4kn9l

— *Walter Bloomberg (@DeItaone) February 6, 2025

Citi’s Revenue Projections and Valuation Insights

Citi anticipates that NVIDIA will report revenues of $38 billion for the quarter ending in January and expects this figure to surge to $42.5 billion by April, driven by the upcoming ramp-up of Blackwell production. Interestingly, following recent stock adjustments, Citi notes that NVIDIA’s price-to-earnings (P/E) ratio is now in the “mid-20s, ”approximately 25% lower than that of its ASIC peers.

Price Target Adjustment Amid Market Developments

In light of the increasing restrictions on chip exports to China, Citi has lowered its price target for NVIDIA shares from $175 to $163 while maintaining a ‘buy’ recommendation.

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