Morgan Stanley’s Highest Conviction Stocks: Top 20 Stocks To Buy

14. NVIDIA Corporation (NASDAQ:NVDA)

Share Price Upside: 16%

Number of Hedge Fund Investors In Q2 2024: 179

NVIDIA Corporation (NASDAQ:NVDA) is a GPU designer whose products cover enterprise and consumer use cases. Its largest business division is the data center business which designs and sells GPUs for artificial intelligence and other high performance computing workloads. NVIDIA Corporation (NASDAQ:NVDA)’s GPUs are the best performing in the industry, which means that it controls more than two thirds of the market. Access to leading edge chip manufacturing technologies and strict software control for customers of its GPUs through CUDA are key NVIDIA Corporation (NASDAQ:NVDA) competitive advantages. The firm’s dominant market position means that there is a shortage of its products, which has allowed NVIDIA Corporation (NASDAQ:NVDA) to beef up its margins by raising prices. However, it has also incentivized competing products from the likes of AMD and Intel, and the firm could see its position weaken if Big Tech succeeds in making its own AI GPUs.

Artisan Partners mentioned NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2024 investor letter. Here is what the firm said:

“NVIDIA’s year-to-date dollar value increase is $1.8 trillion. That’s equivalent to the 2023 increase in US GDP, which is, of course, representative of the collective economic efforts of about 330 million people. NVIDIA’s market cap is now $3 trillion. So is the GDP of France.

Does this make any sense? We wish that we could definitively say that it doesn’t, given that we don’t own NVIDIA. But the answer is more complicated. The growth in revenue and profits at NVIDIA has been stunning. In the calendar year 2020, its revenue was about $17 billion. Estimates for 2024 are around $120 billion. Operating profit is projected to reach about $80 billion in 2024 versus $4.5 billion in 2020. NVIDIA’s revenue essentially represents the capital spending of a small number of very profitable, very cash-rich technology companies buying up the processors necessary to power artificial intelligence (AI) software programs. It’s an AI landgrab. In order for NVIDIA to sustain these levels of revenue or grow them from here, these AI investments must start to generate an ROI for those splashing out $120 billion a year. And if not generating an ROI in the near term, those companies must at least see the prospect of an ROI, a clear sustainable competitive advantage or a moat of some kind.”