Nvidia (NVDA) shares moved higher Friday after analysts at Morgan Stanley selected the chipmaker as its 'top pick' in the semiconductor sector, replacing rival Advanced Micro Devices (AMD), based on its likely ability to 'beat and raise' 2023 profit forecasts based on surging AI demand.
Morgan Stanley analyst Joseph Moore lifted his price target on Nvidia by $50, to $500 per share, while keeping an 'overweight' rating in place, citing a host of new orders and improving AI demand since the chipmaker reported first quarter earnings late last month.
"It seemed clear when Nvidia reported that we would be in a beat-and raise environment for a while, but that sentiment is continuing to increase," Moore said. "We see Nvidia as the cleanest story in AI hardware and believe it continues to deserve more consideration from investors looking for AI exposure."
"Nvidia should trade at a premium to peers given the higher probability of upward revisions near term," Moore added.
Moore also boosted AMD's price target, lifting it by $41 to $138 per share, but noted that "Unlike Nvidia, the company is unlikely to post near term upside."
"Longer-term we still have conviction that the company's server business remains on a share-gaining path, which will resume in a stronger way once budgets expand again to accommodate both AI investments and legacy infrastructure upgrades," Moore said.
Nvida shares were marked 2.11% higher in early Friday trading to change hands at $435.56 each. AMD shares, meanwhile, fell 2% to $121.70 each.
Nvidia joined the so-called 'Trillion Dollar Club' earlier this month when its shares topped the benchmark market value threshold following its blowout first-quarter earnings.
Only five U.S. companies -- Meta Platforms (META), Amazon (AMZN), Apple (AAPL), Google (GOOGL) and Microsoft (MSFT) -- have surpassed the $1 trillion market cap threshold, with the iPhone maker topping that milestone in early August 2018.
Last month, Nvidia said it saw current-quarter revenue of around $11 billion, more than 50% ahead of Wall Street forecasts, with a gross margin of around 70%. That likely equates to earnings in the region of $2.04 a share, nearly double Wall Street's prior $1.07 per share forecast for the quarter.
For the three months ended in April, Nvidia also blew away Wall Street forecasts with a bottom line of $1.09 a share on revenue of $7.19 billion. That result was powered by record data-center sales of $4.28 billion, a 14% increase that Nvidia said was led by growing demand for generative AI and large language models.
AMD, for its part, unveiled a new set of AI chips earlier this week that it hopes will challenge Nvidia's market leadership in what could be a $150 billion dollar market by 2027.
CEO Lisa Su told an audience in San Francisco that the chips, called MI300X and MI300A, will hold significantly more memory that will allow customers to design and maintain large-language AI systems similar to ChatGPT for less money, with Reuters reporting Amazon's Web Services division as a potential customer.
AMD also released its cloud-optimized server CPU, Bergamo, that will used by Meta Platforms.
