Nvidia's recent slide in share price has puzzled some market participants even as near-term revenue and earnings expectations remain elevated, according to Morgan Stanley. Analyst Joseph Moore said the firm has been "somewhat surprised at Nvidia's underperformance YTD after a weak close to 2025," and that many investors are asking what is driving the pullback and how those overhangs will resolve in 2026.
Morgan Stanley reports that its industry checks are "very strong, and getting stronger," and it sees bullish earnings assumptions already priced into many investor models. The bank cited references it has heard to "$9+ in earnings power this year, vs. consensus $7.75," and characterized near-term upside as "highly likely."
While acknowledging the disconnect between solid operational signals and recent share performance, Morgan Stanley argues several sentiment pressures are exaggerated. The firm notes that the set of beneficiaries from AI demand is broadening as capacity constraints and supply shortages spread across the sector.
Another investor concern highlighted by the bank centers on financing for frontier model developers and what some view as "NVIDIA's role in that financing." Morgan Stanley said this is an area that "requires some adjustment," indicating investor focus on financial flows to model development as a component of current sentiment.
Competitive dynamics are also a recurring investor question. Morgan Stanley said worries about competition from ASICs and AMD persist, but judged those concerns to be "overblown."
Looking ahead, the bank pointed to the forthcoming Vera Rubin platform as a potential inflection point. Morgan Stanley expects Vera Rubin to provide a "strong demonstration of NVIDIA's leadership" and to help alleviate investor concerns about the company's positioning.
Summing up its view, Moore wrote that Morgan Stanley sees Nvidia's stock "outperforming from here," while acknowledging the company still faces a "wall of worry to climb." The firm frames the current setup as one in which operational strength and widespread bullish earnings expectations create the potential for meaningful near-term upside, provided the identified sentiment overhangs are addressed.
Summary
Morgan Stanley finds Nvidia's share underperformance surprising given strong channel checks and broad bullish earnings assumptions. The bank highlights potential upside driven by higher-than-consensus earnings expectations and the Vera Rubin platform, while flagging investor concerns about financing for frontier model developers and competitive pressure as areas that need reassessment.
Key points
- Morgan Stanley is surprised by Nvidia's YTD underperformance following a weak close to 2025, despite strong near-term expectations.
- Checks are "very strong, and getting stronger," and market references to $9+ earnings power contrast with consensus of $7.75, implying likely near-term upside.
- The Vera Rubin platform is viewed as a key catalyst that could demonstrate leadership and help resolve share-price concerns.
Risks / uncertainties
- Investor focus on Nvidia's role in financing frontier model developers could continue to weigh on sentiment until expectations are clarified - impacting AI-focused firms and financial relationships within the AI ecosystem.
- Ongoing concerns about competition from ASICs and AMD may persist in the market narrative, even though Morgan Stanley describes these fears as overblown - affecting semiconductor and hardware suppliers.
- The company must still climb a "wall of worry," meaning that persistent negative sentiment or any operational disappointments could limit upside despite strong checks - relevant to equity investors in technology and AI sectors.