Nvidia Is a Top Idea in Bullish Morgan Stanley Note, But Shares Still Fall Sharply

Morgan Stanley called Nvidia the large cap growth chipmaker with the best chance of 'powering through tough conditions.'
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Shares of Nvidia  (NVDA) - Get Report were falling sharply along with the rest of the market Thursday despite a bullish note from analysts at Morgan Stanley.

The firm named Nvidia as one of its top ideas in the semiconductor space as the recent sell off related to the coronavirus outbreak makes the company's valuation more attractive. “For larger cap growth with the best chance of powering through tough conditions, we favor Nvidia,” wrote Analyst Joseph Moore on Thursday.

Nvidia shares were falling almost 10% to $221.99 on Thursday, compared to an 8.2% drop for the Nasdaq.

For Nvidia, Morgan Stanley sees a recovery in cloud spending overall and new applications, including 7 nm Ampere, its first new product in three years, which is expected to ship in the second half of 2020.

Moore cautioned that there are still incremental risks to companies' supply chains due to the impact of coronavirus, and while valuations are down, the chip sector has not fallen enough to warrant an overweight position. 

"Fundamentally, we still see strength in some areas (notably cloud computing), [and] see consumer spending on personal electronics (notably gaming hardware) as an intermediate term beneficiary of drawdown in other areas of discretionary spend," . 

Moore also sees a potential benefit from the coronavirus as remote computing, driven by employers working from home amid the outbreak, could improve.

Morgan Stanley's chipmaker client checks have shown that the debate has shifted to the outlook for the second quarter and prospects for a second half recovery. 

Several other chip names that Moore likes in the current environment are WDC  (WDC) - Get Report as a value play with the most upside in a potential macro recovery; Ambarella  (AMBA) - Get Report as a small cap play that’s been punished more than warranted; Broadcom  (AVGO) - Get Report as offering the best risk/reward ratio in its coverage universe; NXPI  (NXPI) - Get Report as a value relative to its peers and the broader market, Amphenol  (APH) - Get Report as a stock that has been a good buy during periods of macro and stock market dislocation; and Cree  (CREE) - Get Report as a top pick for growth investors. 

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