Nvidia Soars on AMD's Bullish Guidance and Morgan Stanley's Optimistic Outlook

Nvidia (NVDA) stock rallied more than 10% on Wednesday, buoyed by a combination of factors, including better-than-expected guidance from peer AMD (AMD) and a bullish call from analysts at Morgan Stanley. The surge in Nvidia's share price comes after a more than 20% drop in the stock, as investors rotated out of Big Tech over the past month.

Nvidia Rides the Wave of AI Momentum

AMD's Quarterly Results Ease Concerns

AMD's quarterly results, released late Tuesday, played a significant role in Nvidia's stock rally. The company beat expectations on the top and bottom line and posted a better-than-expected outlook for the third quarter, quelling some concerns that the AI trade may have run its course. According to CFRA senior equity analyst Angelo Zino, the "fear of some of this momentum not lasting, or maybe fear that the revenue trajectory wouldn't be there over the next 12 months or so — I think that is starting to ease."

Chip Peers Join the Rally

The positive sentiment surrounding the AI industry extended beyond Nvidia, with chip peers such as Broadcom (AVGO), Micron (MU), Taiwan Semiconductor (TSM), ASML (ASML), and Super Micro (SMCI) also rallying on Wednesday. This broad-based rally suggests that the market is optimistic about the long-term prospects of the semiconductor industry, particularly in the AI and data center segments.

Morgan Stanley's Bullish Outlook

Nvidia's stock was further boosted by a note from Morgan Stanley analysts led by Joseph Moore, who moved the stock to a 'Top Pick' after a recent pullback from record highs reached in June. The firm wrote that the roughly 25% selloff in Nvidia stock "presents a good entry point as we continue to hear strong data points short term and long term, with overblown competitive concerns."

Addressing Nvidia's Challenges

Morgan Stanley cited five main drivers of the recent decline in Nvidia's stock price: spending plans, competition, export controls, supply chain fears, and valuation worries. However, the firm believes that "through those concerns, the earnings environment is likely to remain strong, for Nvidia and for the whole AI complex." The firm maintained its Overweight rating and a 4 price target on the stock.

Nvidia's Impressive Year-to-Date Performance

Despite the recent pullback, Nvidia stock is still up more than 130% this year, outpacing the Nasdaq's more modest 17% gain. The company is set to report its next quarterly report on Wednesday, Aug. 28, which will provide further insight into its performance and the broader AI market trends.