Nvidia Corp NVDA Recent stock gains are based on the graphics chip maker’s AI opportunity, which has prompted Morgan Stanley to rate the stock bullish.

The Analyst: Joseph Moore upgraded Nvidia shares to overweight from equal-weight and raised the price target to $304 from $255, indicating upside potential of around 19%.

The thesis: Morgan Stanley’s view that tactical numbers are challenged in both gaming and data centers has largely come true, Moore said in a note. “The development of generational AI is too much of a megatrend to be distracted by tactical concerns,” he said.

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Nvidia stock will continue to be “hard to ignore” in an otherwise challenging semiconductor environment, the analyst said. AI has become one of the most significant developments in technology.

It’s likely to replace human capital at scale as cloud customers vie for leadership over the next three to five years, Moore said.
As the intensity of AI workloads increases, particularly in training, Nvidia should be a big beneficiary given its dominant position in the training market, Moore said. He also noted a clear shift in cloud spending towards AI, possibly towards Nvidia.

Nvidia’s rating has skyrocketed on short-term estimates, but the entire semiconductor group has also rallied to an “uncomfortable point” that there are few bargains in areas with long-term growth potential, especially as conditions are tough, Morgan Stanley said.

“If we extrapolate growth trends for 5 years, NVIDIA’s valuation is high but not dramatically different from its peers,” Moore said. “We missed the bigger picture elements that NVIDIA is now the arms dealer for one of the most important technology races.”

Expect heavy investments in Nvidia products. That’s bad for the rest of computing, as budget compression comes with heavy demands on AI spending, he explained.

Nvidia Price Promotion: In premarket trading…