Wall Street’s AI Trade: Morgan Stanley Dismisses Slowdown Concerns
Despite the observable decline in AI-related stock performance this year, renowned financial institution Morgan Stanley has expressed confidence in the ongoing demand within the artificial intelligence (AI) sector. In a recent note, analyst Joseph Moore argued that fears of a slowdown in AI spending, particularly the notion that we are entering a “digestion phase,” are unfounded. Instead, he emphasized the persistent demand for inference chips, which are essential for AI capabilities and applications.
Continuous Demand for AI Chips
Moore stated, “The idea that we are in a digestion phase for AI is laughable given the obvious need for more inference chips which is driving a wave of very strong demand.” This assertion comes at a time when many investors are cautious and concerned about reduced investment in AI technologies amid global economic pressures, such as tariffs and trade disputes.
Highlighting insights from influential industry figures, Moore pointed to recent comments made by OpenAI’s Sam Altman and Alphabet’s Sundar Pichai, illustrating that AI companies are grappling with an insatiable demand for GPU chips. He noted, “While Wall Street wrings its hands over a laundry list of very real concerns, Silicon Valley focus has shifted to a very different challenge,” underscoring the growth in token generation that has surged more than five times since the beginning of the year. This burgeoning demand is leading to increased investment to accommodate rapidly expanding workloads.
Stock Market Sentiment and AI Companies
AI stocks have faced considerable pressure, particularly in 2023, ignited by the launch of DeepSeek’s efficient large language model in January. This release exacerbated fears that major cloud providers would significantly reduce their GPU chip orders from Nvidia, a leading supplier in the AI chip market. As concerns of an AI bubble began to surface, investor sentiment took a hit, especially following former President Donald Trump’s tariff policies implemented in early April. Shares of Nvidia, in particular, have dropped by an alarming 28% since late January, while other major tech stocks associated with AI have dropped approximately 21% from their recent peaks.
Future Prospects for Nvidia
While acknowledging the constraints Nvidia faces, such as export restrictions and limited supply of its H20 chips, Moore remained optimistic about the company’s growth trajectory. He indicated that these supply issues are expected to constrain Nvidia’s revenue potential over the next few quarters. However, he is confident that once these constraints are resolved, Nvidia will exhibit substantial growth in 2026.
Moore highlighted, “NVIDIA had almost no revenue for Blackwell in October, did $11 billion in January, and likely well over $30 billion in the current quarter.” He expressed that he does not anticipate growth slowing down in the near future. “Per our checks, this demand commentary has intensified in the last few days,” he added, reinforcing his bullish outlook on the semiconductor giant.
Revised Earnings Forecasts and Stock Ratings
In light of the strong demand forecasts, Moore revised his revenue and earnings per share estimates for Nvidia, increasing them by 10.7% and 11.9% respectively for the calendar year 2026. He affirmed that Nvidia remains a “top pick” among investors, reiterating his “Overweight” rating on the stock. Furthermore, he set a price target of $160, which represents a potential upside of approximately 45% from its current trading levels.
Conclusion
As the AI industry navigates through its current challenges, Morgan Stanley’s position, as articulated by analyst Joseph Moore, highlights a contrasting perspective to the prevailing narrative of a slowdown. With strong demand for chips evident, and expectations of future growth, the outlook for key players like Nvidia remains optimistic. Investors who can discern these nuances might find opportunities within the seeming turmoil of the AI market, suggesting that the transformational potential of AI solutions is far from over.