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Business Insider
8 hours ago
- Business
- Business Insider
Nvidia or Palantir: Morgan Stanley Selects the Superior AI Stock to Buy
A smart investor is always on the lookout for growth sectors, places where the economy is primed to boom and where consequent opportunities are riding high. Right now, few sectors are offering the strong growth potential of artificial intelligence (AI). Confident Investing Starts Here: In just a few short years, AI – and particularly generative and agentic AI – has become the 'shiny new thing' on the cutting edge of high-tech. The entry of AI is rapidly transforming the tech industry, and it is making inroads into numerous other areas. Data management, content creation, publishing – we've only begun to find out what AI can do, and we can only imagine what it will do. A report from UN Trade & Development points out that the world's AI market, which was estimated at $189 billion in 2023, will expand 25x by 2033 to reach $4.8 trillion. AI's growth will bring with it gains for companies across a wide spectrum of fields, including development, applications, hardware, infrastructure, and power generation. Such rapid growth is creating new opportunities for investors. The challenge won't be finding one – it'll be choosing the right one. That's where Morgan Stanley's analysts come in. They've zeroed in on two tech titans that have become synonymous with AI innovation: Nvidia (NASDAQ:NVDA) and Palantir (NASDAQ:PLTR). Both are riding the AI wave, but Morgan Stanley is making a clear call on which one stands out as the better buy right now. Let's take a closer look. Nvidi a Nvidia stands at the forefront of Wall Street's tech revolution. As a dominant force among the 'Magnificent 7' and boasting a $3.45 trillion market cap, it's not only the largest of the tech mega-cap – it's the biggest publicly traded company in the U.S. The AI boom, which took off in late 2022 with the debut of ChatGPT, put Nvidia in the spotlight. As the top supplier of high-performance GPUs, the company was well-positioned to meet the explosive demand for AI-capable chips – and that sent NVDA shares soaring 660% over the past three years. However, even a juggernaut like Nvidia isn't immune to shifting market dynamics. After an extraordinary run, the company's stock momentum has started to cool amid rising volatility this year. One key challenge stems from the lingering effects of President Trump's tariff policies. The chip industry is deeply intertwined with global supply chains, and Nvidia's exposure to East Asia has made it vulnerable to tariff risks. That may be easing now, as both China and the EU have entered into trade talks with the White House. Yet, Nvidia isn't standing still. The company continues to push the boundaries of innovation, doubling down on emerging technologies to maintain its leadership in the AI race. This past May, Nvidia unveiled the world's largest dedicated quantum computing research supercomputer, the ABCI-Q, hosted at the Global Research and Development Center for Business by Quantum-AI Technology (G-QuAT). The new system is already integrated with Nvidia's open-source hybrid computing platform CUDA-Q. A second new development was made public last week. Nvidia announced that its Blackwell architecture, designed to power the latest AI platforms, showed superior performance on the latest rounds of the MLPerf Training, a key benchmark used to rate the capabilities of new AI systems. In Nvidia's last earnings report, covering fiscal 1Q26, company CEO Jensen Huang noted that the company's breakthrough Blackwell products are in full production and went on to outline the potential for AI to continue supporting strong results: 'Global demand for NVIDIA's AI infrastructure is incredibly strong. AI inference token generation has surged tenfold in just one year, and as AI agents become mainstream, the demand for AI computing will accelerate.' Turning to the company's financial results for the quarter, we find that Nvidia's revenue came in at $44.1 billion, up 69% year-over-year and $810 million better than had been expected. The company's non-GAAP EPS figure, at 81 cents, was 6 cents per share above the forecasts. Data center revenue, at $39.1 billion, was the main revenue driver and was up 73% year-over-year. Nvidia's gross margin for the quarter was reported at approximately 61%. For 5-star analyst Joseph Moore, the key point for investors to remember about Nvidia is that the future looks good. The Morgan Stanley analyst writes in his note on this chip maker: 'Racks get better from here. China is entirely derisked, at least for direct shipments, and we are optimistic that there will be some path to monetize at least a portion of that demand. Gross margins have bottomed and are improving to the mid 70s, sustainably. And every customer commentary confirms that customers waiting for these new technologies have left demand on the table. So our confidence in durable demand drives is quite high. We think that our numbers are conservative given the variables at play, and we see a high probability of continued upward revisions.' Moore's comments support his Overweight (i.e., Buy) rating on NVDA stock, while his $170 price target points toward a one-year upside potential of 20%. (To watch Moore's track record, click here) Overall, Nvidia has earned a Strong Buy consensus rating from the Street's analysts, based on 40 reviews that include 35 Buys, 4 Holds, and 1Sell. The stock is priced at $141.72 and its $172.36 average price target implies a ~22% upside in the next 12 months. (See NVDA stock forecast) Palantir Technologies Palantir is another standout in the AI space. Founded in 2003 by venture capitalist Peter Thiel, the company has built a strong reputation as a leader in data analytics and software solutions. Like Nvidia, Palantir has leveraged its unique capabilities to ride the wave of the AI boom, and the results have been striking. Over the past three years, its stock has skyrocketed 1,291%, including a 69% gain year-to-date. These gains haven't come by chance. Palantir stock's growth is rooted in the strength of its data management and analysis tools, which are used by businesses, non-profits, and government agencies alike. At the center of its offerings is the AI Platform (AIP), a solution that blends advanced AI capabilities with human-driven decision-making. One of its key strengths lies in its accessibility – users can interact with the platform using natural language, without needing coding expertise. AIP also supports multilingual inputs and translation frameworks, making it easier for users around the world to engage with its tools. Palantir can currently boast more than 760 customers, from both the public and private sectors. The company's AI-powered data platforms are popular with big businesses, and Palantir can count such names as Stellantis and BP among its users, as well as the US Department of Defense. In May, Palantir received a $795 million contract modification to its Maven Smart System agreement with the Army, extending support through 2029. The company is also among the short‑listed firms – alongside SpaceX, Lockheed Martin – and others, being considered for President Trump's $175 billion Golden Dome missile defense program. On the financial side, Palantir has been singularly successful at generating strong revenues and earnings. In 1Q25, the last period reported, the company had a top line of $883.9 million, representing 39% year-over-year growth and beating the forecast by $21.72 million. At the bottom line, Palantir's EPS came to 13 cents in non-GAAP terms, matching analyst expectations. The company proved successful at closing large deals during the quarter, including 31 deals worth at least $10 million. Despite this strength, some caution is warranted. Morgan Stanley's Sanjit Singh remains confident in Palantir's fundamentals but cautions that the valuation may be stretched after such a strong run. 'Palantir continues to prove out that it is one of the clear AI winners in software which has translated to accelerating top-line growth of 30%+ and a rule of 40 score (revenue growth + operating margin) of 83%. While this represents elite level performance in software, the current valuation of ~95x CY27 FCF makes underwriting a return on Palantir shares extremely challenging. As a result, we remain EW and await a better entry point before getting more bullish,' Singh noted. Singh's Equal Weight (i.e., Hold) rating comes with a $98 price target, implying a potential 25% drop from current levels. It's safe to say that his ideal entry point lies somewhere south of that. (To view Singh's track record, click here) Morgan Stanley's view aligns with the broader Street consensus. Palantir holds a Hold rating overall, based on 18 recent analyst recommendations: 3 Buys, 11 Holds, and 4 Sells. The stock is currently trading at $127.72, while the average price target stands at $100.13, implying a potential ~22% downside over the coming year. (See PLTR stock forecast) With the facts laid out, the Morgan Stanley analysts come to a clear conclusion: Both of these AI stocks are solid performers, but Nvidia is the superior choice to buy right now. To find good ideas for stocks trading at attractive valuations, visit TipRanks' Best Stocks to Buy, a tool that unites all of TipRanks' equity insights.
Reuters
06-03-2025
- Business
- Reuters
Trump will splinter world's 'China plus one' plans
MUMBAI, March 6 (Reuters Breakingviews) - Donald Trump, once more, is moving to slash imports from China. Just like in his first term, the returning U.S. president wants to decouple, opens new tab from the world's second-largest economy and establish self-sufficiency in key strategic sectors. The difference this time is that he's cracking down on his adversary's, opens new tab practice of re-routing products through third countries. The new administration's vision is far-reaching and heralds greater upheaval for global supply chains. The real estate tycoon is only in the seventh week of his second term but he has already ratcheted up import tariffs on the People's Republic twice, adding a cumulative 20 percentage points of duties on top of existing charges. That hits the baseline level most economists built into their global forecasts as they grappled with a wide range of potential trade war scenarios, and those tariffs are now expected to continue rising. Trump is also attacking Beijing by targeting backdoor beneficiaries of the so-called 'China plus one' trade, under which companies accelerated moving operations out of the People's Republic after he unleashed tariffs in 2018. A decade-old strategy to address the country's rising labour costs morphed into a way to reduce geopolitical risks from the deteriorating Sino-American relationship. This initial rerouting of supply chains only dealt with the risk of direct bilateral trade between the two powers. Production overall is still highly connected to the world's factory. China's share of U.S. imports fell 8 percentage points to 13.4% between 2017 and 2024, according to the U.S. Census Bureau. But its share of global merchandise exports rose from 12.7% to 14.2% over a similar period, data from the UN Trade & Development shows. Some Chinese-made goods simply go through third countries to the U.S., often with minimum value added on the way. U.S. imports from Vietnam tripled from 2017 to 2024, reaching $137 billion according to the Census Bureau, while Mexico's rose by almost two-thirds to $506 billion. The United States' neighbour specialises in cars and car parts, while the Southeast Asian country's share of U.S. imports surged in areas ranging from telecommunication and sound recording kit, furniture and footwear, according to an analysis by investment bank Natixis. The America First Trade Policy, opens new tab memorandum, published on Trump's first day in office, calls for tariff modifications to industrial supply chains to address circumvention. Vietnam looks especially vulnerable to this type of sanction. Its domestic value added, which measures the share of gross export value that is generated inside a country, fell 5 percentage points to 50% in the decade to 2020. That compares with 64% on average for India, Malaysia and Mexico – countries whose figures increased or remained flat over the same period, research by Nomura shows. The U.S. is leaning on its allies too. Take Mexico. It is now weighing imposing tariffs on Chinese goods and has launched, opens new tab a dumping investigation into Chinese steel, reinforcing its bid to appease Washington, whose 25% tariff against its southern neighbour went into effect on Tuesday. President Claudia Sheinbaum readily admits that her country, home to firms like German carmaker BMW ( opens new tab, has little option but to prioritise, opens new tab the U.S. relationship. Trump's Treasury Secretary Scott Bessent says, opens new tab Canada too ought to apply tariffs on China to protect North America from a flood of goods from the People's Republic. 'In the past a lot of the restrictions were focusing on Made in China, and increasingly it is focused on Made by China', says Gary Ng, senior economist at Natixis. Trump's ultimate policy intent remains unclear but there are various ways the China plus one trade might now evolve. The United States is seeking to bring back some manufacturing. This effort could focus on strategic sectors including steel, aluminium, pharmaceuticals, automotives and high-tech goods such as semiconductors. For low-end manufacturing, where it doesn't make sense for the U.S. to compete, Trump may favour importing goods from its allies with less exposure to China, says Sonal Varma, Nomura's chief economist for Asia ex-Japan. In this scenario, Vietnam would lose because it is a big recipient of both Chinese trade and investment, which has concentrated on establishing manufacturing bases in Southeast Asia. That would be a headache for firms like Samsung Electronics ( opens new tab and Nike (NKE.N), opens new tab, with significant operations in the country. By contrast India has an opportunity to gain, Varma says. It's notable that during Prime Minister Narendra Modi's U.S. visit last month, both nations agreed to work on the first segment of a trade deal by the fall of 2025, aiming for bilateral trade worth $500 billion in 2030. Though Delhi still relies heavily on Chinese components, India is attracting a greater share of its investment from the U.S., which accounted for 10% of the total foreign direct investment equity inflows into India since 2000 according to India's Department for Promotion of Industry and Internal Trade. Only tax havens Mauritius and Singapore had a higher share. Even so, India has only made limited progress so far on capturing the redomiciled Chinese production, beyond some high-profile success with Apple (AAPL.O), opens new tab suppliers. And on Wednesday, in an address to Congress, Trump called out India's high duties. Ultimately China's manufacturing prowess makes it difficult to shut the country out, warns Varma. 'It's like a whack-a-mole strategy, every time policymakers try plug in one loophole there is another route firms find to bypass tariffs'. The upshot may be a cleaner segregation of U.S.-centric supply chains that minimise the use of Chinese components. It's challenging to replicate the efficiencies and economies of scale of existing supply chains, so this may happen on a product level rather than a country level, says Frederic Neumann, chief Asia economist at HSBC. In this case, Vietnam may continue to churn out goods, but they'll get sent to different markets depending on where the components came from. Overall, animosity in Washington toward Beijing runs deep and it is hard to envision the world's two largest economies striking a grand bargain that will ease the U.S. assault on China's exports and investments. More importantly, third countries and companies are unlikely to bank on any such arrangement holding up. That points to a harder reset of China-plus-one trade regardless of what the unpredictable U.S. president does in the coming weeks and months.
