Nvidia, the leading player in artificial intelligence (AI) technology, is continuing to receive support from its Big Tech partners. Recent earnings reports from major tech companies such as Microsoft, Alphabet (the parent company of Google), Meta Platforms (formerly Facebook), and Amazon have indicated their ongoing investment in advancing their AI ambitions. This is a positive sign for Nvidia, as all four companies are purchasers of Nvidia’s cutting-edge AI chips, which dominate the market for training large-scale AI models.
Investors will have the opportunity to hear directly from Nvidia when the company releases its quarterly earnings report later this month. While not making any bold predictions, CNBC analyst Jim Cramer believes that Nvidia is the “quiet partner behind the winners,” including Microsoft.
Although Nvidia has experienced setbacks due to US government restrictions on exporting AI chips to China, the company remains optimistic. While China sales may decline, the strong demand for Nvidia’s chips in the rest of the world is expected to compensate for the loss in the short term.
One of the primary concerns among investors, however, is whether the reduced China opportunity will hinder Nvidia’s ability to meet long-term growth projections. Despite its impressive performance in the stock market this year with a gain of approximately 175%, Nvidia’s stock price has dropped 20% since reaching its all-time high in late August.
However, the recent earnings reports and statements from Microsoft, Alphabet, Meta Platforms, and Amazon provide evidence to support Nvidia’s ability to mitigate the impact of export controls. Major US tech companies are heavily investing in AI infrastructure, with Nvidia’s advanced chips being a crucial part of these companies’ capital expenditure budgets.
Microsoft, for example, reported an increased capital expenditure of $11.2 billion in the last quarter, primarily driven investments in cloud and AI infrastructure. Additionally, Microsoft’s successful monetization of AI, particularly through the growth of its cloud-computing service Azure, further emphasizes the importance of AI spending to investors.
Similarly, Alphabet’s capital expenditure reached $8 billion in the third quarter, primarily focused on the purchase of servers containing AI chips. Alphabet’s partnership with Nvidia, as well as its utilization of custom processors like the Tensor Processing Unit, reaffirms the company’s commitment to AI.
Meta Platforms is also preparing to increase its capital expenditures in the coming year, with an initial outlook of $30 billion to $35 billion in 2024. These investments will be primarily directed towards servers optimized for running AI workloads.
Even Amazon, with a decline in its overall capital expenditures, is increasing its spending on AI-related projects. CFO Brian Olsavsky highlighted investments in generative AI efforts and large language models as key areas of focus for the company. Amazon’s commitment to AI processors, including Nvidia chips and its in-house Trainium and Inferentia, underscores the high demand for AI technology.
Despite the current global chip shortage, Nvidia is working closely with suppliers like Taiwan Semiconductor Manufacturing Company to address the supply constraints. The company remains confident in its ability to meet demand as improvements are projected in each quarter leading up to fiscal 2025.
The recent earnings reports from Big Tech companies have shown that there is a growing marketplace for Nvidia chips within data centers as more of these chips become available. As Nvidia prepares to release its own earnings report, investors eagerly await further insights into the company’s performance.
(Note: The CNBC Investing Club, led Jim Cramer, has a vested interest in Nvidia, Microsoft, Alphabet, Meta Platforms, Broadcom, and Amazon. Any stock trades Jim Cramer are communicated to subscribers of the club in advance, adhering to specific waiting periods before executing the trades.)
(Pictured: Nvidia CEO Jensen Huang)