Nvidia and more: Morgan Stanley reveals its favorite global stocks to play 'a pivotal moment for AI'

Published Wed, Aug 23 20239:02 PM EDT

Lucy Handley @in/lucy-handley-b2b0a61a/@lucyhandley

Analysts at Morgan Stanley picked several global stocks they say are set to benefit from the artificial intelligence trend, from semiconductors to server companies. "The 2024 earnings for AI stocks are higher than they were on July 1, and fundamentals for AI companies look even better," Morgan Stanley said in a note to investors seen by CNBC Tuesday, titled "A Pivotal Moment for AI." The analysts also described AI stocks as "materially cheaper today than they were last month." Nvidia reported earnings on Wednesday that topped estimates . Revenue in the second quarter doubled from $6.7 billion a year earlier and increased 88% from the prior period. Morgan Stanley said this is a "pivotal moment for NVDA and the AI supply chain," adding that investors should "prepare for potential AI opportunities." "Unconstrained demand is probably well above what investors are modeling as NVDA is only serving less than half of the demand out there today. So fundamentals for companies are even better and still on an uptrend," the analysts, led by Shawn Kim, wrote. 'Greater China' stock picks Taiwan Semiconductor Manufacturing Company (TSMC) is Morgan Stanley's top pick under its "Greater China Semiconductors" coverage. The bank described the company as a "key enabler of future AI semis given its technology leadership." It estimates TSMC will make 6% of its revenue from AI-related semiconductors in 2023 and said the company expects a compound annual growth rate of 50% in the next five years. The bank also likes fellow Taiwanese company Global Unichip Corp , saying: "We also suggest investors to build positions on dip for GUC, as we believe the market has factored in the 2023 weakness." In AI tech hardware, its preferred choice is server company Wistron . It also likes PC-maker Asustek and tablet company Quanta Computer , saying "we like Quanta because it's the key server rack assembly partner to the US hyperscalers and will start to ramp from 4Q onwards." Korean and Japanese stocks In South Korea, its top pick is chipmaker SK Hynix , and it also likes Samsung . In Japan, Morgan Stanley named Disco Corporation , a maker of semiconductor manufacturing devices, for its "meaningful demand increase from generative AI-related Equipment." "With a backdrop of a shift in spending towards AI, and an exceptional supply demand imbalance that should persist for the next several quarters, investors need to be cognizant of tactical upside risk for AI stocks. Fundamentals remain intact — earnings revisions are higher and valuations lower," the analysts said. — CNBC's Michael Bloom and Yeo Boon Ping contributed to this report