Nvidia’s gains of 4.35% and 3.65% on Monday and Tuesday, respectively, were likely fueled by dip buying, as investors sought to capitalize on last Friday’s carnage. The bounceback was briefly interrupted during Wednesday’s regular session – before Meta Platforms’ earnings report that evening reminded Wall Street just how much money is being spent on AI infrastructure to Nvidia’s benefit. That led to Thursday’s 3.71% advance. Microsoft and Alphabet’s comments on AI investments Thursday evening were propelling Nvidia on Friday, with shares flying more than 5.5% to around $881 each. Nvidia closed April 18, the session before last Friday’s plunge, at $846.71 per share.
Nvidia’s cutting-edge AI processors have been among the hottest commodities in the tech industry since Microsoft-backed OpenAI launched ChatGPT in late 2022, sparking an investment boom in generative AI. The largest U.S. tech firms – Microsoft, Amazon, Meta, and Alphabet, in particular – have poured money into the buzzy tech, creating a financial windfall for companies whose hardware enables it. Few have benefited at the scale of Nvidia, which more than doubled revenue to $60.9 billion in the 12 months ended in January. Operating income soared nearly 700%. Since the end of 2022, its share price has skyrocketed nearly 500%, including more than 75% so far in 2024.
Investors have increasingly wondered how long Nvidia’s boom can last. The company is not only facing mounting competition from other chipmakers, such as Advanced Micro Devices, and in-house chip efforts from some of the tech giants themselves. There’s also an overarching concern that the pace of investment in AI may not be sustainable, leading to fewer orders for Nvidia’s powerful but expensive processors. The tech earnings reports this week demonstrated the spending is not going to slow anytime soon. And, of course, that’s good news for Nvidia investors.
Meta Platforms fired a dramatic shot in the AI spending battle after Wednesday’s close. Alongside the first-quarter earnings report, the Instagram and Facebook owner raised its full-year capital expenditures guidance to between $35 billion and $40 billion, up from its previous range of $30 billion to 37 billion. Shares of Nvidia, however, moved the other way Thursday, a sign the market understood Meta’s heftier spending would, at least partially, make its way to the world’s most valuable semiconductor company. According to Bank of America, Nvidia is the biggest supplier of AI chips to Meta. It is followed by AMD and Club name Broadcom, which co-designs Meta’s custom processors.
Alphabet and Microsoft kept the party going after the close Thursday. Alphabet’s first-quarter capital expenditures came in at $12.01 billion, much higher than the $9.87 billion expected by Wall Street, according to estimates compiled by FactSet. CFO Ruth Porat indicated that in the final three quarters of this year, the Google parent’s capex is expected to be at or above first-quarter levels. That implies full-year capex of at least $48 billion, topping the $42.34 billion expected by analysts prior to the results. Nvidia is the largest supplier of AI chips to Alphabet. Microsoft reported slightly lighter-than-expected capex for the three months ended in March but expects a “material” quarter-over-quarter increase in capex, fueled by spending on cloud-computing and AI infrastructure investments.
The next earnings report to shed light on demand for Nvidia’s AI chips is set for Tuesday evening when Club name Amazon releases first-quarter results. While Amazon also has custom AI chips, it’s a sizable Nvidia customer and the companies have enjoyed a longtime partnership. Even electric vehicle maker Tesla indicated earlier this week that it plans to buy tens of thousands more Nvidia chips this year to support self-driving car efforts. For now, it’s difficult to walk away from the earnings reports of Meta, Alphabet, and Microsoft with a conclusion other than that Nvidia’s business is booming. As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade.
