Morata joined Chelsea from Real Madrid for £58million last July but he has struggled to adapt to the Premier League.
Juventus made an enquiry for the Spain forward but their interest has waned after signing Cristiano Ronaldo.
AC Milan are interested too with talks underway this week over a possible deal.
Speaking on the Sky Sports Transfer Talk podcast Sheth said: “We’re told that initial negotiations got underway on Wednesday.
“Our colleagues at Sky in Italy believe that Milan sporting director Leonardo has had a series of phone conversations about a potential transfer for Alvaro Morata.”
“It’s thought Morata is keen on a return to Italy.
“You’ll remember he enjoyed a really, really good spell at Juventus on loan from Real Madrid and helped them get to the Champions League final a couple of seasons ago as well.
“But listen as with massive deals like this, the clubs appear to be miles apart on their valuations at the moment.”
Although Chelsea’s high valuation of the player could come back to haunt them.
AC Milan may take their interest elsewhere with Gonzalo Higuain, who is also wanted by Chelsea, a possible target.
Sheth added: “It means Milan remain interested in Gonzalo Higuain from Juventus and Radamel Falcao as well.
“You’ll remember Morata joined Chelsea just last summer for £57m. The whole Milan Chelsea Morata Higuain, it all seems to be related here.
“If Morata goes then it would open the door for Chelsea to go for Higuain. But with the issues of valuations but it seems Milan may hold the key as to who ends up where.
“Keeping Morata at Chelsea and still going for Higuain shouldn’t be counted out either because they’ve got another striker that they may be willing to let go in Olivier Giroud.”