Morgan Stanley hikes price targets for two chipmakers, sees Nvidia rising more than 40%

Morgan Stanley reiterated overweight ratings on Nvidia and Broadcom, raising price targets to $250 for NVDA (from $235; ~41% upside to Friday close) and $443 for AVGO (from $409; ~10% upside). The note highlights Nvidia's dominant AI market share and persistent customer anxiety around supply (general NVIDIA products and Vera Rubin), while flagging Broadcom's strong AI exposure — particularly its TPU involvement in Google's Tensor processor supply chain — as a key growth driver even as some expected Broadcom chip volumes for Meta may be deferred in favor of TPU use. NVDA has risen ~32% in 2025 and AVGO ~74% year-to-date, supporting the firm's constructive view but tempered by margin and multiple dynamics versus peers.

Analysis

Market structure: Nvidia (NVDA) and Broadcom (AVGO) are primary beneficiaries—NVDA retains pricing power on GPUs while AVGO gains from TPU/ASIC OEM relationships—driving margin expansion for both in the next 6–12 months. Direct losers are mid-tier GPU hopefuls and legacy ASIC suppliers losing wallet share to TPU-focused supply chains; expectation is rising ASPs and sustained lead times, keeping supplier bargaining power elevated and pushing semi capex into high-margin AI nodes.

Risk assessment: Key tail risks include (1) U.S./export regulatory action or export-control tightening within 30–90 days that could restrict Chinese demand, (2) supply execution failures (packaging/wafers) causing missed revenue in 2H26, and (3) hyperscaler insourcing (Meta/OpenAI building internal ASICs) reducing multi-year TAM—each could compress multiples by 20–40%. Short-term (days–weeks) the story is sentiment-driven; medium (3–12 months) depends on quarterly guides and capacity adds; long-term (1–3 years) hinges on customer ASIC migration and gross-margin normalisation.

Trade implications: Tactical: overweight NVDA (2–3% portfolio) and AVGO (1.5–2%) targeting NVDA $250 and AVGO $443 within 6–12 months; use 3–6 month call spreads to limit gamma and sell OTM puts to enhance yield if willing to own. Relative: pair long AVGO vs short META (META) to capture Broadcom TPU tailwinds replacing Meta MTIA volumes; hedge with short-dated volatility against earnings windows.

Contrarian angles: Consensus underestimates substitution risk—hyperscalers accelerating internal ASICs could shave 5–15% revenue growth for Broadcom/Nvidia beyond 2026 if adoption accelerates. Valuation expansion may be overdone: compare to 2017 GPU cycle where initial multiple rerating reversed once capacity caught up; monitor order-book vs billing divergence and memory lead times as early warning indicators.

Key Decisions for Investors

• Establish a 2–3% long position in NVDA, preferentially buying into dips below $180; hedge with a 6–9 month call spread (buy 180/260 call spread) sized to limit downside to 2% portfolio risk, target $250 in 6–12 months and trim on first move above target.
• Add a 1.5–2% long in AVGO with a 6–12 month horizon; consider selling a 1–2% notional 12-month $360 cash-secured put if price falls toward $360 to lower basis, target $443 (MS PT) and reduce exposure if gross margin guidance falls >200bp on next quarterly report.
• Implement a pair trade: long AVGO (1% allocation) vs short META (0.75% allocation) to capture TPU wins vs MTIA delays; size the short to net delta ≈0 and cover/reevaluate on Meta public confirmation of ASIC volume timing (watch for 2H26 volume signals).
• Use options to monetize conviction: sell 30–45 day NVDA covered-call (0.5–1% notional) into earnings if IV spikes >40% and buy 3–6 month OTM call spreads to retain upside; avoid concentrated long-dated naked calls given potential for swift sentiment reversals.
• Monitor specific triggers in next 30–90 days before scaling: Department of Commerce export announcements, hyperscaler capex disclosures (GOOGL/GOOG, META earnings) and Broadcom quarterly TPU revenue cadence; if any single trigger indicates >10% downside to consensus TAM, cut NVDA/AVGO exposure by 50% within 5 trading days.