Nvidia (NVDA) - Get Report and Intel (INTC) - Get Report were downgraded to equal weight from overweight by Morgan Stanley analysts, a move they said reflected in part the semiconductor giants' lofty valuations.
The analysts raised their share-price targets to reflect recent market activity.
Morgan Stanley’s also said its expectations for a V-shaped economic recovery prompt it to think cyclical names are more attractive.
“Valuations for cloud names are elevated,” the Morgan Stanley analysts, led by Joseph Moore, wrote in a report obtained by Bloomberg.
Given the firm’s forecast for a sharp economic rebound, “we prefer more exposure to broader cycle and consumer rebound” stocks, they said.
“There is risk either way, with valuation risk in cloud, and more numbers risk everywhere else,” they said. Cloud-related chipmakers “trade at record enterprise- value-to-sales and price-to-earnings valuations.”
Nvidia’s price-to-earnings ratio, based on forward earnings estimates, stands at 46.08, well above its five-year average of 31.83, according to Morningstar.
Intel’s forward p/e is 12.94, up from its five-year average of 12.46, Morningstar says.
Nvidia's present multiple "simply leaves very little room for error," even for a company with the best five-year growth outlook among chipmakers, Morgan Stanley analysts said, according to The Fly.
Morgan Stanley raised its share-price target for Nvidia to $380 from $363 and for Intel to $65 from $61. Both companies are based in Santa Clara, Calif.
Nvidia shares recently traded at $369.03, up 0.6%. They have jumped 52% over the past three months.
Intel recently traded at $61.20, up 1.8%. It has risen 10% over the past three months.