Morgan Stanley Keeps NVIDIA as Top Chip Pick, Favors Memory Shares

Morgan Stanley ranks NVIDIA as its top semiconductor stock pick while favoring memory shares for a potential sector rebound, citing lower valuations and substantial buybacks funded by upcycle cash flow.

The firm's sector ranking places compute first, followed by memory, semiconductor manufacturing equipment, analog chips, networking and CPUs. Morgan Stanley points to strong compute demand and estimates that NVIDIA and Broadcom each trade at about nine times projected 2028 earnings.

Morgan Stanley says NVIDIA has a broader customer base than AMD and ASIC makers, with flexibility to serve projects in regions where electricity is available. It estimates the company's next-generation Feynman architecture could lift revenue per gigawatt of data-center capacity above $50 billion, compared with about $40 billion for Rubin. The firm also sees potential for revenue sharing and software and services income as countries build their own AI infrastructure.

Morgan Stanley describes NVIDIA as a defensive pick, arguing its large market value limits room for further earnings-multiple expansion. It says memory shares could offer a more aggressive way to gain exposure to a sector rebound, citing lower valuations and buybacks funded by cash flow during an industry upcycle. The firm says falling share prices can increase the per-share earnings benefit of repurchases.

Morgan Stanley's Sandisk scenario assumes an $835 share price and buybacks equal to about 50% of revenue. Under those assumptions, it estimates Sandisk could repurchase more than half its float by the end of 2028. At current prices, the firm sees its preference for Sandisk and Micron as roughly equal.

Semiconductor manufacturing equipment ranks third, with shareholder returns a key theme for 2027. Morgan Stanley says the group could finish the year with stronger balance sheets if its 2027 wafer-fab equipment spending forecasts remain intact. Analog chips rank fourth, with less attractive risk-reward than compute and memory. Networking ranks fifth; the firm sees strong fundamentals but says optimistic expectations are already reflected in share prices.

CPUs rank sixth. Morgan Stanley expects shortages to persist in the near term but says they may last less time than memory shortages.