A major issue affecting the entire market! Morgan Stanley predicts: NVIDIA's earnings report guidance may be conservative! Due to uncertainties in sales in China

As the market frenzy brought about by expectations of interest rate cuts from the Federal Reserve gradually fades, investors are refocusing their attention on the earnings outlook for U.S. companies. Currently, the market is pinning its hopes on NVIDIA's Q2 earnings report on Wednesday, expecting the AI chip giant to deliver sufficiently strong performance to restore confidence in the tech sector. According to news from the Chase Trading Desk, Morgan Stanley analysts Joseph Moore, Shane Brett, and others warned in their latest research report that due to significant uncertainties in sales prospects in the Chinese market, the upcoming earnings guidance may be more conservative than market expectations. At present, the market's optimistic sentiment regarding NVIDIA's performance has significantly increased, with some analysts predicting the company's Q3 revenue could reach $55 billion. However, Morgan Stanley pointed out that to achieve the upper limit of this optimistic range, "billions of dollars" in sales from China would be needed as support. The report noted that with recent concerns about AI chip trade restrictions between the U.S. and China intensifying, NVIDIA's management may adopt a more cautious stance regarding the Chinese market when formulating business guidance. However, Morgan Stanley also emphasized that this is mainly to manage short-term expectations, and they remain "very optimistic" about NVIDIA's growth prospects over the next 12 months. Chinese Business Becomes a Key Variable, Potentially Lowering Earnings Guidance Threshold In recent communications with investors, Morgan Stanley observed a significant shift in market sentiment. A series of concerns that had previously troubled investors—including competition from DeepSeek, potential delays in the Blackwell architecture, challenges at the rack level, and a slowdown in data center construction by some customers—have now largely dissipated, replaced by a general sense of optimism. This optimistic sentiment is directly reflected in revenue expectations. Morgan Stanley's revenue forecast for NVIDIA's Q3 is $52.5 billion, but the firm admitted that feedback from investors indicates a more optimistic outlook, with some sell-side institutions predicting figures as high as $55 billion. The report stated that how management assesses opportunities in the Chinese market is a "huge variable" affecting the final guidance. Currently, while some licenses have been approved, the future approval outlook remains unclear. Recent concentrated media coverage has further amplified these concerns. The report cited Reuters, stating that NVIDIA has requested suppliers to slow down production of related products, to which NVIDIA responded, "We continue to manage our supply chain to respond to market conditions," using vague language but not denying the related reports. Based on this series of uncertainties, Morgan Stanley judged that NVIDIA's management will adopt a conservative strategy regarding the Chinese business when providing earnings guidance, which will effectively "lower the expected threshold to some extent." Short-Term Conservatism Does Not Change Long-Term Optimism Although NVIDIA's short-term guidance is expected to appear conservative due to factors related to China, Morgan Stanley emphasized that this has not shaken their confidence in the company's long-term fundamentals. The report emphasizes that the bank remains very optimistic about NVIDIA's prospects over the next 12 months and has strong anecdotal evidence. Morgan Stanley believes that investors need to understand the factors that may affect short-term guidance, but this should not be confused with the company's long-term growth potential. From a longer-term perspective, both China and the United States have incentives to ensure that the issue of U.S. chip access is "ultimately resolved." The report states that concerns about the Chinese business have actually "clarified expectations for the outlook," and a more cautious performance guidance starting point may leave room for subsequent stock price performance. Morgan Stanley concludes that even though market expectations are already high, they remain optimistic about NVIDIA's stock performance at current levels, given the strong growth momentum over the next 12 months