Morgan Stanley on Nvidia: “Everything should get better from here”

Was that... the bad part? Because after the insane profit growth that’s seen Nvidia beat earnings expectations for 10 consecutive quarters, becoming a $3 trillion company in the process, Morgan Stanley analysts think “everything should get better from here.”

The chip designer’s Q1 results and Q2 guidance underscored that any issues with the AI boom are not related to demand. The sticking points for Nvidia are how much and how fast the company can roll out new products that everyone wants, and who’s allowed to buy them.

“Nvidia is outgrowing expectations despite supply constraints, and is outgrowing competition by a larger magnitude,” wrote a team led by Joseph Moore, who affirmed the company as his top pick in the semi industry and cited improving rack supply, a massive backlog, and the potential for some bounce-back in its China business as positive news for the company going forward.

Nvidia spelled out that revenues would have been $2.5 billion higher if not for the H20 export ban that prevented sales to China from April 9 on. Despite that, and the $8 billion in sales it expects to forgo in the current quarter, its Q2 revenue forecast was virtually in line with estimates that many analysts thought were too high and hadn’t adequately factored in China-linked headwinds.

“Without H20 ban, the company would have beaten guidance by over $3 billion for April,” Moore wrote. “We do believe that at current revenue levels there is significant unmet demand, so ongoing supply constraints could keep things better for longer.”

Moore boosted his price target on the stock to $170 from $160 and raised revenues and earnings estimates for both this year and the next.