Nvidia (NASDAQ:) is expected to report its first-quarter 2025 results after the closing bell on Wednesday, with investors largely expecting another strong performance from the AI chip titan.
The more profits continue to rise, the greater the concerns among investors. In particular, the ongoing unprecedented AI rally, now undergoing a $2.3 trillion test, has led many to wonder when AI revenues might level off.
Determining where Nvidia’s revenues could peak remains a challenging task, according to analysts at Morgan Stanley. However, as hyperscalers discuss increased long-term spending expectations for AI, the long-term outlook appears more positive, they noted.
Despite this, there are concerns about a possible “air pocket” by the end of the year due to the upcoming Blackwell product transition.
“We cannot rule out such a pause, but for now our checks continue to indicate strong, steady growth even as we transition to Blackwell,” analysts wrote in a Monday note.
Morgan Stanley warns that the next step for the technology sector depends on Nvidia.
More specifically, they said a significant run-up to this earnings season for AI stocks and a strong quarterly performance could lead to stocks consolidating their gains. With an average share price gain of 27% year-to-date for this AI group, Nvidia’s earnings release could be a volatile event with a positive deviation from the base case, analysts said.
In their bull case, Nvidia’s consensus-beating revenue could lead to a 3-15% price increase, with Innolight and FII the top tactical picks. On the other hand, the group could see a 5-10% downtrend in their bear case, reversing the order of preference.
“The AI chip market remains strong as we combine strong supply chain controls with strong sourcing and higher cloud investments,” analysts wrote.
“On the earnings front, the recovery is playing out for AI stocks in Asia – and if validated by NVIDIA’s outlook, these stocks remain cheap and will continue to outperform in our view,” they continued.
From a broader perspective, the Wall Street giant said it is most constructive towards companies involved in GPU, HBM, custom chip design, manufacturing, testing and rail kits. As such, analysts’ top individual stock preferences include Nvidia, SK Hynix, DISCO, Advantest, KYEC, TSMC, Wistron, Hon Hai, FII, King Slide and Innolight.
