Morgan Stanley: Buy Apple, Nvidia for AI Growth Before Earnings

Key Takeaway

• Morgan Stanley recommends buying tech stocks like Nvidia (up 77% this year) and Apple ahead of earnings, citing AI and cybersecurity growth.
• Nvidia's strong AI spending trends and a $1,000 price target highlight its market potential; Apple's strategy involves a no-cost options trade for earnings bounce.
• Earnings reports from these tech giants are keenly awaited for insights on navigating AI advancements, regulatory challenges, and market opportunities.

Big Tech Earnings Anticipation

Morgan Stanley has recently highlighted several big tech-related stocks as potential buys ahead of their earnings reports. The firm's analysis suggests that despite the volatility in the market, companies like Nvidia, Apple, Dell, Keysight Technologies, and Fortinet are positioned for growth. This perspective comes as these companies are about to deliver their quarterly results, with expectations of strong performance based on various factors including advancements in AI, cybersecurity, and server technology.

Nvidia, for instance, has seen a significant increase in its stock value, up 77% this year, driven by strong spending trends in AI and high demand for its GPUs. Analyst Joseph Moore from Morgan Stanley anticipates a beat to consensus for Nvidia's April quarter and strong guidance ahead. Similarly, Keysight Technologies, with its broad customer base across semi, componentry, traditional networking, and hyperscalers, is expected to capitalize on the AI/ML tailwind. Fortinet, on the other hand, is seen to benefit from regulatory tailwinds and a strong demand for securing critical infrastructure.

Market Movements and Strategies

The anticipation around these earnings reports has led to strategic movements in the market. Morgan Stanley Wealth Management, for example, has increased its position in Nvidia, citing the company's leadership in AI GPUs and its potential for further gains. The firm's $1,000 price target for Nvidia suggests a belief in the stock's continued upward trajectory.

In the case of Apple, despite expectations of a year-over-year decline in both earnings and revenue, there's a strategy to capitalize on potential earnings bounce through a no-cost options trade. This approach reflects a broader sentiment that the current market volatility and the mixed reactions to big tech earnings reports present opportunities for strategic investments.

Earnings and Market Outlook

As these companies approach their earnings reports, the market is watching closely for signs of how they will navigate the challenges and opportunities ahead. Nvidia's new AI chip and its implications for demand and gross margins, Apple's anticipated product announcements at its biggest WWDC ever, and Fortinet's potential for topline acceleration in the second half of the year are among the key factors under scrutiny.

The diverse strategies and outlooks for these companies underscore the complex landscape in which big tech operates. With advancements in AI, cybersecurity, and other technologies driving growth, alongside regulatory and market challenges, the upcoming earnings season is a critical period for investors and analysts alike.

Street Views

• Joseph Moore, Morgan Stanley (Bullish on Nvidia):

  "NVDA continues to see strong spending trends in AI, with upward revisions in demand from some of the newer customers such as Tesla and various sovereigns... We expect a beat to consensus for the April quarter and strong guidance, setting the stage for another series of positive EPS revisions."

• Meta Marshall, Morgan Stanley (Bullish on Keysight Technologies):

  "Within the T&M [test & measurement] space, we believe KEYS is best positioned to capitalize on the AI / ML tailwind given exposures across various layers of networks including physical, protocol, and application... The company has [the] broadest set of customers across semi, componentry, traditional networking and hyperscalers, which combined with their depth of portfolio should make them a share gainer in AI."

• Hamza Fodderwala, Morgan Stanley (Bullish on Fortinet):

  "Net, we see upside to Q1 estimates and remain confident in 2H topline acceleration... Our partner conversations indicated more stability in overall demand after a turbulent 2H′23... With growing regulatory tailwinds around securing critical infrastructure demand for Fortinet OT [operational technology] security (>10% of bookings) remains strong."

• Morgan Stanley Analyst for Dell (Bullish on Dell):

  "The strength of AI server orders backlog pipeline and expanding CSP/enterprise [cloud service provider] customer base show DELL’s AI story is early days and gaining momentum. ... Guidance suggests margins will be pressured Y/Y but we believe mgmt’s rev/EPS outlook is conservative; our FY25 EPS is 3% above the high-end of guide. Further momentum in the AI server narrative PCs inflecting to growth and S&P 500 inclusion remain key upcoming catalysts."

• Morgan Stanley Analyst for Apple (Cautiously Optimistic on Apple):

  "We believe Apple will slightly beat Mar Q ests but guide June Q revs/implied EPS 4-7% below Street. At $165 this appears priced in but today's volatile market it's tricky setup. That said with Apple's biggest WWDC ever on June 10th we'd buy post earnings weakness. Remain OW; $210 PT."