NVIDIA's stock price has hardly moved in the past two quarters, but Morgan Stanley's assessment is that the fundamentals are actually strengthening. The market is just stuck on two issues—whether growth can &#34;last through&#34; 2026 and whether market share will gradually be eroded by ASICs and AMD. Morgan Stanley has reinstated NVIDIA as the &#34;preferred&#34; choice in the semiconductor sector, maintaining an overweight rating with a target price of $260, viewing the current valuation as a rare entry window.
According to Wind Trading Desk, Morgan Stanley's North American semiconductor analyst Joseph Moore stated in a recent report that NVIDIA's earnings for 2027 are priced at only about 18 times earnings, which is an unexpectedly good entry point. His logic is not betting on exceeding expectations next quarter, but rather betting that investors' doubts about &#34;growth durability&#34; will begin to ease in the coming months.
The evidence supporting this judgment comes more from supply chain and customer behavior: the report mentions that hyperscale cloud providers are locking in longer-term orders with upstream suppliers, even showing instances of &#34;3-year orders with partial full prepayment.&#34; Such actions are hard to reconcile with plans to &#34;hit the brakes next year.&#34; However, the report also acknowledges that the pressure on downstream cash flow is a real issue: some cloud infrastructure businesses are in a negative cash flow state, and if projected by financial numbers, capital expenditures may indeed slow down next year.
As for market share, Morgan Stanley does not deny that NVIDIA may see a slight decline in 2026: it provides a structure where NVIDIA accounts for about 85% of revenue share, ASICs slightly above 10%, and AMD slightly below 5%; given that NVIDIA's scale is approaching &#34;$80 billion per quarter,&#34; it is not surprising that peers grow slightly faster and share declines by 1-2 percentage points.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/9813f883-4c70-4cc1-9927-78c479a7c256.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/9813f883-4c70-4cc1-9927-78c479a7c256.png"/>
<h2>The essence of two quarters of stagnation: the market is betting on &#34;growth not lasting,&#34; rather than denying current prosperity</h2>
Morgan Stanley attributes NVIDIA's recent &#34;stagnation&#34; to the structure of expectations: the market has already assumed that the current situation is strong, with the real divergence lying in 2027.
It mentions an unusual comparison—after initially shifting the sector preference from NVIDIA to SanDisk, and then to Micron, memory stocks have seen cumulative gains of 300%-900%, while NVIDIA's stock price has &#34;remained stagnant&#34;; meanwhile, NVIDIA's earnings expectations for the &#34;current quarter&#34; have been raised by 38% over six months. This indicates that what is pressing down on the stock price is not the data, but doubts about the cycle's longevity.
The report also places this emotional fluctuation within a historical pattern: over the past three years, the market has been uneasy about &#34;the next year&#34; at the beginning of each year, and only when visibility improves do stock prices show a phase of outperformance. It bets that 2026 will repeat this process.
<h2>The signals from the supply chain are leaning &#34;hard&#34;: three-year locked orders, even full prepayment</h2>
Morgan Stanley believes that sustainability is harder to prove, but it sees increasingly extreme behavior from upstream. The report states that hyperscale customers are placing three-year orders with memory suppliers, and in some cases, even making full prepayments; an extreme case is that &#34;100% of revenue for 2028 was received this quarter,&#34; with the corresponding scale still several times the current level
It views this type of advance payment as a &#34;durability clue&#34;: if customers really intend to slow down next year, it is difficult to explain why they would lock in cash for longer-term supply. The report emphasizes that this is just one of many signs—feedback from the supply chain indicates that multiple links are preparing for sustained growth.
<h2>The counter-evidence from downstream comes from cash flow: some cloud infrastructure businesses are still &#34;burning cash&#34;</h2>
Morgan Stanley did not gloss over the &#34;cash flow issue.&#34; The report mentions that some cloud infrastructure businesses are in a negative cash flow state: this can certainly continue (strong balance sheet and financing space), but if we only look at the financial numbers, next year's spending does indeed &#34;seem to be slowing down.&#34;
The explanatory framework it provides is closer to a &#34;time lag&#34;: the response from NVIDIA's management during the conference call was that cloud vendors would earn more money on these investments than the market model suggests;
The report also adds that the cloud GPU business is highly profitable, and market participants are discussing that &#34;the gap between computing power supply and demand is expanding daily by single digits.&#34; In other words, short-term cash flow may look poor, but that does not mean that investment returns do not exist.
<h2>Market share may slightly retract, but customer attention has already turned to Rubin</h2>
In terms of competitive landscape, Morgan Stanley provided a clear breakdown: NVIDIA's revenue share is about 85%, ASIC slightly above 10%, and AMD slightly below 5%. It expects that peer growth will be slightly faster in 2026, and NVIDIA's share may decline by 1-2 percentage points, due to very &#34;physical&#34; reasons: the larger the scale and the stronger the supply constraints, the harder it is to maintain the same growth rate.
However, the report believes that customers are really focused on Rubin (expected to ship in the second half of the year), and prior to that, competition is mainly reflected in Blackwell versus various alternatives. It also acknowledges that the moat &#34;has been slightly eroded,&#34; as leading model developers tend to be architecture-neutral, using NVIDIA, AMD, Google Cloud TPU, and self-developed ASICs;
However, according to its research, even in areas where third parties emphasize &#34;lower total ownership costs,&#34; customer preferences still often lean towards NVIDIA. The report even mentions that the two largest ASIC users and the two largest potential AMD users may still allow its business growth to reach 80%+ compared to NVIDIA in 2026.
Additionally, regarding the more aggressive bullish narrative (leading model developers pointing to the need for &#34;hundreds of GW of computing power&#34; by 2029, compared to about 30 GW this year), Morgan Stanley's attitude is restrained: it does not buy this number, but also clearly states that it does not see signs of a &#34;cycle ending&#34; in 2026.
Its key constraint is capacity: semiconductor capacity cannot push supply to that scale in a short period. More importantly, feedback from the global supply chain is not &#34;weaker orders,&#34; but rather &#34;locking in cash to secure growth through 2028.&#34;
For the upcoming GTC conference, Morgan Stanley expects that it may not completely convince skeptical investors of the sustainability of capital expenditures, but it is likely to clarify the market share debate. This presentation is similar to 2024—providing a more complete four-year roadmap and emphasizing that competition is not just about the chips themselves, but also includes cabinet and ecosystem construction; at the same time, it expects Groq IP to have a place in the roadmap

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NVIDIA has been trading sideways for two quarters, yet Morgan Stanley has reaffirmed it as the "top pick" in semiconductors. The market is concerned that its growth will peak in 2026, but the extreme purchasing actions of cloud giants with "three-year contracts and full prepayment" serve as the strongest counter-evidence. Morgan Stanley believes that a forward price-to-earnings ratio of only 18 times is an extremely rare entry window. Regarding market concerns about a decline in market share, Morgan Stanley thinks that with NVIDIA's scale approaching "USD 80 billion per quarter," a slight acceleration in peer growth and a 1-2 percentage point share retreat is not unexpected

- Morgan Stanley reports that despite stagnant stock prices for NVIDIA, the fundamentals are strengthening, hindered by concerns over 2026 growth sustainability and market share losses to ASIC and AMD.  
- The analysis indicates that large-scale cloud providers are committing to longer-term supply agreements, which contradicts fears of a downturn in spending.  
- Morgan Stanley anticipates a slight decline in NVIDIA's market share by 2026, but retains a positive outlook on its growth potential and resilience against competitive pressures.

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Chip "preferred" NVIDIA, replacing storage, Morgan Stanley's reasoning: stock price has been stagnant for a long time, and the argument of "growth peaking in 2026" has collapsed