Morgan Stanley's assessment of NVIDIA: Impressive performance, but three major risks to be cautious about!

This article is from J.P. Morgan.

How to evaluate the performance?

Compared to market expectations, it is definitely better than expected. Revenue, profit, and the guidance for the first quarter all exceeded market expectations by more than 10%.

Regarding overseas investors, according to feedback from our overseas research team, this performance fell below the expectations of some more optimistic overseas investors.

As for domestic investors, the expectations for NVIDIA were originally in line with market expectations (as statistically reported by Bloomberg and other public platforms), so the general feedback is still quite positive~

Reasons for the good performance and sustainability?

The main reason is the strong performance in AI-related revenue and profit, indicating that the demand for AI products continues to exceed expectations.

In terms of sustainability, domestic investors are slightly more optimistic than overseas investors. The reason is that in the fourth quarter of last year and the first quarter of this year, the performance in the Chinese market was quite poor. However, starting from the second quarter of this year, the "special customized" version H20 tailored for the Chinese market began shipping. Even if the demand outside of China is mediocre, the performance after the second quarter is relatively certain.

Potential risks?

One is competition, our electronics team believes that this is the most critical factor to watch. The market is concerned about what NVIDIA will do after its customers start making their own chips.

However, recent performance in the fourth quarter and first quarter of the three major IC design companies in Taiwan was lower than expected, indicating that even if NVIDIA's customers plan to make chips, the current progress is concerning. Therefore, investors generally feel that at least based on the current progress, the pressure and uncertainty brought by competition this year are minimal.

Another risk is geopolitical risks, which is difficult for industry analysts to assess. Indeed, this risk is likely to persist and sporadically escalate during election years.

However, from a fundamental perspective, after the release of this performance, investors' concerns about this point have decreased. The reason is that despite the significant suppression of demand in the Chinese market over the past 2-3 quarters, NVIDIA's performance has remained strong.

Another risk is the overall decline in the U.S. stock market, although it is uncertain whether it will happen, the reasons behind it, or the timing of its occurrence. However, in case of a U.S. stock market decline, it may have a negative impact on NVIDIA's valuation or stock price.

After discussions with our electronics team and investors, there is a viewpoint: comparing to the recent decline in the Chinese market, the valuation correction of large-cap stocks is more severe than that of growth stocks.

NVIDIA's demand, meaning the certainty of its volume, is very high. Therefore, even in the event of a U.S. stock market decline, leading blue-chip companies with performance support should still fare better than companies with weaker performance certainty, becoming a safe haven for some funds.