Nvidia’s plan to mobilise up to $500 billion in third-party capital for artificial intelligence infrastructure has won strong backing from Morgan Stanley, which sees the initiative creating more predictable long-term earnings for the chipmaker.
The investment plan, involving major financial institutions including Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs and KKR, aims to expand access to computing infrastructure as demand for AI capacity continues to grow.
Morgan Stanley said Nvidia’s decision to back neo-cloud investments in exchange for revenue-sharing arrangements could create significant annuity-like revenue streams while limiting downside risks for the company.
“Nvidia backstopping neo-cloud investment in exchange for revenue sharing is likely to further polarise the stock. We are definitively on the optimistic side, seeing a large annuity potential with limited downside,” the brokerage said.
Analysts led by Joseph Moore maintained Nvidia as their top semiconductor pick, arguing that demand for computing capacity was strong enough to support the initiative.
“We believe that the compute demand is there to support this – and that the demand would be underserved if not for this initiative,” they said.
The analysts said Nvidia could benefit from taking minority stakes in a broad range of cloud service providers, potentially adding greater predictability to its future earnings.
“Adding annuity revenue streams through minority stakes in a wide variety of cloud service providers should add to the predictability of the longer term earnings power, in a way that limits downside,” they noted.
Morgan Stanley’s technology teams estimate that the four largest US hyperscalers will deploy about 25 gigawatts of computing capacity in 2027, excluding Tensor Processing Units.
A neo-cloud ecosystem of a similar scale, monetised at about $20 million per megawatt, could generate approximately $500 billion in annual revenue, according to the analysts.
If Nvidia captured a quarter of that revenue at full margins, its fiscal 2028 earnings before interest and tax could receive a 60 per cent boost, Morgan Stanley estimated. The impact could translate into a 25 per cent uplift to fiscal 2029 EBIT estimates without assuming any increase in Nvidia’s initial sales.
Even a smaller deployment of between 2GW and 5GW could generate an estimated 10 per cent uplift to earnings per share, the analysts said.
The announcement has nevertheless attracted scepticism on Wall Street, with investor Michael Burry describing the initiative as a “stunt” and some analysts raising concerns about the circular nature of investment and revenue arrangements within the AI ecosystem.
Nvidia has defended the strategy, saying it could help establish computing capacity as an investable asset.
Morgan Stanley, however, expects the broader spending on AI infrastructure to strengthen Nvidia’s position as the dominant supplier, particularly as the company approaches its next major Vera Rubin product cycle.
“Broadening out of spending should keep NVIDIA as the de facto standard, especially heading into a major Vera Rubin product cycle,” the analysts said.
