Morgan Stanley on "Nvidia investing in OpenAI": No matter how controversial, this is a concrete "major positive."
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Author: Dong Jing
Source: Hard AI
Morgan Stanley believes that, despite market skepticism, this deal brings real incremental revenue to Nvidia.
According to a report, on September 22, Nvidia and OpenAI announced the signing of a letter of intent to establish a strategic partnership, where OpenAI will use Nvidia's systems to build and deploy at least 10 gigawatts (GW) of AI data centers.
On September 30, according to Hard AI, Morgan Stanley stated in its latest research report that although the market is divided over Nvidia's investment in OpenAI, the agreement will bring Nvidia $350-400 billion in potential incremental revenue, a scale far beyond current market expectations.
The report notes that this transaction is entirely incremental business, whereas the market previously expected this demand to be met by other cloud service providers. The scale described in the agreement is several times higher than current market estimates and will significantly raise Nvidia's core expectations.
The report states that Nvidia will become OpenAI’s primary computational partner, gaining a completely incremental business expansion, while its current valuation remains reasonable. Morgan Stanley maintains an “overweight” rating for Nvidia, with a target price of $210, representing a 19% upside from the current stock price.
The Deal Far Exceeds Market Expectations
Morgan Stanley’s report analyzes the scale and impact of the deal in detail.
According to the agreement, Nvidia will help OpenAI deploy 10GW of computing capacity, which will generate $350–400 billion in potential revenue, and this portion had not been included in market forecasts until now.
Analysts point out that from Nvidia's consensus expectations, its dollar growth forecasts for fiscal years 2027, 2028, and 2029 are $60 billion, $45 billion, and $42 billion, respectively—equal to adding just a few gigawatts of construction each year beyond 2026.
By comparison, OpenAI’s broader goal is to build 200GW by 2033, a substantial increase from 2GW by the end of this year—meaning an average annual increase of 31GW over the next eight years.
Morgan Stanley notes that Nvidia only plays a small role in OpenAI’s grand plan, and these plans reflect bullish scenarios that the market has yet to recognize.
The report also highlights that the deal is designed with prudent risk control mechanisms.
Morgan Stanley points out that investing $10 billion per gigawatt—a total capital investment of $50-60 billion, with $35-40 billion going to Nvidia—will only be realized if public or private market valuations support such investment.
Morgan Stanley views this as a healthy mechanism and does not mean the 10GW investment profile is locked in. Nvidia’s investment will proceed with each gigawatt deployed, representing direct investment in overall company equity, not project-based investment.
Certainty of Opportunities with Reasonable Valuation
Morgan Stanley emphasizes that whether every dollar of this deal is realized or not, it raises the baseline scenario expectation. The investment bank continues to see robust construction accelerating, as many clients still have strong spending intentions.
The report notes that, at the end of the day, while bullish scenarios carry speculative elements, none of these are reflected in current expectations, and valuations remain reasonable. Morgan Stanley gives Nvidia an “overweight” rating, based on its 2025 earnings per share forecast of $6.36 and a price-earnings ratio of about 33.
Analysts at the firm believe that this valuation is discounted compared to major AI peers like Broadcom, and a premium to the overall semiconductor sector, reflecting Nvidia's greater certainty, potential for upward revisions, and premium profit margin and growth prospects in this field.
Based on the latest stock performance data, Nvidia’s year-to-date increase has reached 221%, leading among semiconductor stocks covered by Morgan Stanley. The current stock price is $178.19, still 19% away from the $210 target price.
Morgan Stanley concludes that while there are some similarities with cyclical risks, these are bullish scenario risks rather than baseline risks.
This article is from WeChat public account "Hard AI". For more cutting edge AI news, click here
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