Despite recent evidence warranting concern, Morgan Stanley analysts are pounding the table on semiconductor giant Nvidia (NASDAQ:NVDA). In essence, the experts believe that the steep selloff in Nvidia stock has overshot itself. As a result, it’s an opportunity for long-term investors to acquire what they term a “top pick” at a discount.
In a research note, Morgan Stanley’s Joseph Moore wrote, “[t]he selloff presents a good entry point as we continue to hear strong data points short term and long term, with overblown competitive concerns.” Subsequently, Nvidia stock screamed higher during the midweek session, up around 11% in early afternoon trading.
Still, concerns have also started to rise to the forefront. Prior to Wednesday’s big jump, CNBC reported that Nvidia stock fell 16% this month and 26% from its all-time high. One reason for the red ink was a rotation away from the main winners of artificial intelligence (AI). In their place, investor dollars flowed into bull market laggards, particularly small-capitalization enterprises.
Regarding specific headwinds against Nvidia stock, Moore cited rising competition, possible export controls and a rich valuation. Still, the analyst attempted to reassure shareholders that such worries will likely “fade with time.”
Fundamental and Technical Pressures Mount Against Nvidia Stock
In the meantime, Moore is urging investors to consider the long-term narrative of NVDA stock. Regarding possible turnaround catalysts, Moore cited plenty of upside catalysts:
“…the prospect for multiple upward revisions, an increase to lead times and visibility as demand transitions to Blackwell, a strong answer to any competitive concerns, and the lack of other exciting stories in semis away from the AI theme, at a valuation that is suddenly much more reasonable than a few weeks ago.”
To note, Morgan Stanley rates NVDA stock as “overweight.” In addition, the investment bank forecasts shares to hit $144, implying 38% growth from Tuesday’s close. Nevertheless, some experts are starting to become skeptical about the continued surge.
According to Goldman Sachs, many investors have become concerned that the investments poured into AI may exceed their productivity returns. In other words, the money put into the technology doesn’t justify the subsequent rewards.
Another concern is that Nvidia stock previously broke down below key technical thresholds, per Raymond James chart analyst Javed Mirza. Last Friday, the analyst warned that continued erosion could lead to a correction to $94.94. While that exact scenario didn’t materialize, NVDA fell sharply on July 30. At the moment, it’s still down 7% in the trailing month.
Options Data Warrants a Closer Look
Finally, investors will want to take a close look at the options flow data for Nvidia stock. This screener exclusively filters for big block transactions likely placed by institutional or professional traders. According to Barchart, the net trade sentiment of all option premiums sits at approximately $16.06 million below breakeven.
Stated differently, the total of all premiums from options with bearish sentiment far exceeds that of options with bullish sentiment. Thus, while Morgan Stanley may be saying one thing, options traders are signaling a different outlook.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor held a LONG position in NVDA.
