Nvidia (NVDA) stock rallied more than 12% on Wednesday following better-than-expected guidance from peer AMD (AMD) and a bullish call from analysts at Morgan Stanley after a more than 20% drop in the stock.

AMD's quarterly results out late Tuesday quelled some concerns that the AI trade may have run its course as investors rotated out of Big Tech over the past month. The company beat expectations on the top and bottom lines and posted a better-than-expected outlook for the third quarter.

Additionally, tech giant Microsoft (MSFT) revealed higher spending on data center infrastructure in its latest quarterly results. AI chip suppliers like AMD and Nvidia stand to benefit from Big Tech's increased investments.

"The fear of some of this momentum not lasting, or maybe fear that the revenue trajectory wouldn't be there over the next 12 months or so — I think that is starting to ease," CFRA senior equity analyst Angelo Zino told Yahoo Finance on Wednesday.

Chip peers including Broadcom (AVGO), Micron (MU), Taiwan Semiconductor (TSM), ASML (ASML), and Super Micro (SMCI) also rallied on Wednesday.

Nvidia was also boosted on Wednesday by a note out from Morgan Stanley analysts led by Joseph Moore, who moved the stock to a 'Top Pick' after a recent pullback from record highs reached in June.

The firm wrote the roughly 25% in Nvidia stock "sell-off presents a good entry point as we continue to hear strong data points short term and long term, with overblown competitive concerns."

Morgan Stanley cited five main drivers of the recent decline in Nvidia — spending plans, competition, export controls, supply chain fears, and valuation worries — but said, "Through those concerns, the earnings environment is likely to remain strong, for Nvidia and for the whole AI complex."

The firm maintained its Overweight rating and $144 price target on the stock.

Nvidia stock is still up more than 135% this year, outpacing the Nasdaq's more modest 17% gain. The company is set to issue its next quarterly report on Wednesday, Aug. 28.

Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on X at @ines_ferre.

Click here for the latest technology news that will impact the stock market

Read the latest financial and business news from Yahoo Finance