Morgan Stanley has released a research report evaluating NVIDIA (NVDA.US) from a cross-asset perspective, focusing on the company's "Balance Sheet-as-a-Service" strategy. The report highlights that NVIDIA is increasingly leveraging its robust balance sheet to support AI infrastructure financing, with mechanisms such as equity stakes, prepayments, leases, residual value support, unsold capacity, and revenue-sharing arrangements becoming pivotal to ecosystem compute financing. As contingent exposure grows, the credit side warrants closer attention. The report's core views are split into two segments: equity and credit. Morgan Stanley assigns an "Overweight" rating to NVIDIA stock with a price target of $300, while maintaining a "Neutral/Sidelined" stance on the credit side, citing early-stage tail risks, limited transparency, and substantial scale as reasons to remain on the sidelines for now.
Equity Side: Overweight Rating with $300 Price Target
Morgan Stanley analyst Joseph Moore has issued an "Overweight" rating on NVIDIA stock with a price target of $300, believing that the strong quarterly performance has laid a more favorable foundation for future trajectory. Specifically, Rubin has restored NVIDIA's narrative leadership. Compared to Grace Blackwell Ultra, Rubin delivers a 30x improvement in throughput per megawatt and a 35% reduction in token costs. The opportunity size per gigawatt has also expanded from $18 billion with Hopper to $25 billion with Blackwell, and further to $40 billion with Vera Rubin. Management's commentary on fiscal 2028 has also been highly positive.
The report notes that approximately 70% of fiscal 2028 revenue growth remains heavily supply-constrained, with demand far exceeding that level. As the product lineup becomes more comprehensive—including networking, Groq, and Vera—NVIDIA is able to capture higher value. The gross margin reset has also alleviated market concerns. The fiscal 2028 gross margin guidance of 72%-73% aligns broadly with Morgan Stanley's expectations, primarily reflecting the pass-through of expensive memory costs while simultaneously enhancing gross profit.
Supply commitments have more than doubled to $279 billion, with $179 billion covering the majority of the estimated $252 billion in cost of goods sold for fiscal 2027-2028. Revenue-sharing arrangements have not yet been factored into forecasts, presenting upside potential. New cloud-related opportunities are currently small but growing rapidly. Deploying just a few gigawatts could drive double-digit upside to fiscal 2029 EPS, with limited downside risk. Additionally, both ecosystem investments and cash returns are expected to continue. The annualized scale of quarterly dividends plus buybacks exceeds $100 billion, with next year expected to grow roughly in line with revenue. The report argues that even with some cash being consumed by ecosystem support, the value proposition remains intact.
Credit Side: Maintaining 'Neutral/Sidelined' as Tail Risks Prove Difficult to Assess
Morgan Stanley TMT credit research analyst Lindsay Tyler has given NVIDIA a "Neutral | Sidelined" credit rating. The report states that exceptional growth is transforming NVIDIA's balance sheet strength into a strategic AI financing tool, while simultaneously introducing new risks. Model and relative value indicators suggest conditions are acceptable, but tail risks remain in early stages, with low transparency and substantial scale—prompting a decision to stay on the sidelines for now.
The report projects that by the end of 2028, NVIDIA's total credit exposure will expand to approximately $200 billion. Of this, around $170 billion constitutes "contingent exposure," divided into three main components: 1) approximately $40 billion related to lease liabilities, including commitments not yet commenced and guarantees on partner leases; 2) approximately $65 billion tied to potential residual value support, where NVIDIA may provide up to 25% residual value backing in certain scenarios to unlock over $500 billion in third-party capital; 3) approximately $65 billion associated with new revenue-sharing/credit support models. This model may establish minimum revenue thresholds—meaning NVIDIA only participates in revenue sharing after cloud providers generate revenue from NVIDIA GPUs exceeding an agreed-upon level—which helps shorten customer contract durations and extend financing terms.
Morgan Stanley notes that NVIDIA's credit spreads have improved, but still advises investors to exercise patience. The report states that as an Aa1/AA-rated credit entity, NVIDIA appears to trade at seemingly wide spreads, yet given the scale and limited transparency of at least $1 trillion in GPU/XPU-related innovation financing across the ecosystem, it remains premature to engage at this juncture. The firm maintains a "Neutral" stance on NVIDIA credit, with the risk being that contingent exposure could come in lower than anticipated.