Nvidia (NVDA) -) shares powered higher Monday after analysts at Morgan Stanley affirmed the graphics-chip maker as their 'top pick' in the sector ahead of its second-quarter earnings later this month.
Morgan Stanley analyst Joseph Moore, who carries an overweight rating and $500 price target on the stock, said a "fairly exceptional" supply-demand imbalance in the artificial-intelligence-chip sector, as well as a massive shift in spending toward the emerging technology, is likely to persist over the near term.
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Moore further argued that Nvidia's recent selloff, which has seen the stock fall more than 10% since toucing its all-time high $480.88 in late June, is a "good entry point" for investors.
"Last quarter's guidance for $5 billion in revenue upside was the largest single increase in one quarter in semiconductor history, and we expect healthy upside to that number," Moore said.
He said that less than half the expected demand for AI chips is currently being met.
"Given that backdrop, it seems clear that the implied $7.5 billion in quarterly data-center revenue is trending to $15 billion over the next few quarters, which is our primary focus driving enthusiasm for the stock," Moore added.
Nvidia shares were marked 6.1% higher in midday trading following the Morgan Stanley note to change hands at $433.38 each. That move pegs the stock's six-month gain at around 88% and values the Santa Clara, Calif., company at around $1.1 trillion.
Nvidia joined the Trillion-Dollar Club in June
Nvidia joined the so-called Trillion Dollar Club in late June, when its shares topped that benchmark market value threshold following blowout first-quarter earnings and the near-term sales forecast Moore noted in his 'top pick' analysis.
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.
Earlier this year, Nvidia Chief Executive Jensen Huang described AI as having reached an "inflection point" as the world's fastest-developing technology after the group unveiled a new AI supercomputer known as Nvidia DGX.
The platform enables business customers to access AI-related technology through cloud-computing providers such as Microsoft (MSFT) -) and Oracle (ORCL) -), essentially creating a new market for AI-as-a-service to thousands of companies worldwide.
That ability to address the new AI investment explosion, sparked in part by the unveiling of the ChatGPT chatbot earlier this year, could put Nvidia in a leadership position within a market that could be valued at more than $600 billion.
Nvidia will report its second-quarter earnings after the close of trading on Wednesday Aug. 23, with earning indications suggesting it will report a bottom line of $2.07 per share on revenue of $11.131 billion.
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