Nvidia shares popped 13% Wednesday after remarks from top customer Microsoft and rival chipmaker AMD signaled there wouldn’t be a slowdown in the multibillion-dollar buildout of AI servers based around GPUs.
Microsoft CEO Satya Nadella and finance chief Amy Hood said Tuesday the company plans to spend even more on Nvidia-based infrastructure next year.
Microsoft spent $19 billion on capital expenditures during the fiscal fourth quarter, with about 60% on hardware. The tech giant also suggested it’s seeing a return on investment from its expensive GPU-based servers.
The company’s remarks on its earnings call eased investor worries that Nvidia’s elevated AI sales were tied to an arms race among cloud providers that could be slowing down.
Microsoft’s earnings report “may encourage most Nvidia/semis investors, as Microsoft’s capex came in much hotter-than-expected at $19 billion in the quarter,” UBS analyst Karl Keirstead wrote in a note on Wednesday.
Nvidia has been the primary beneficiary of the AI boom. Its stock has doubled so far in 2024 and is up more than 500% since ChatGPT’s release in November 2022 kicked off intense investor interest in artificial intelligence technology.
Morgan Stanley analysts named Nvidia a “top pick” in a note on Wednesday, saying that concerns including competitive dynamics, export controls and supply chain concerns are likely to “fade with time.”
“Our perception is that the market is taking a very glass half-empty view of some of the hyperscale comments, where there is a clear desire on the part of customers to continue to commit resources to developing multi modal generative AI,” Morgan Stanley analyst Joseph Moore wrote.
Moore also highlighted that Nvidia’s chips are transitioning from last-generation “Hopper” or H100 series chips to a new generation, called Blackwell, which could spur additional sales.
“Our checks generally show that customers want to deploy GPUs as quickly as possible, and the resilience of the H100 even a few weeks from Blackwell ramping to us makes those spending concerns seem premature,” Moore wrote.
Top rival raises AI forecast
AMD, Nvidia’s primary rival in the market for data center GPUs, reported better-than-expected sales and earnings on Tuesday and told investors that demand for its GPU remains strong.
AMD CEO Lisa Su said the company expected $4.5 billion in AI chip sales this year, an 11% increase over its previous guidance.
Goldman Sachs analysts suggest Microsoft and AMD’s data points contradict rising investor anxiety that a handful of cloud providers and big technology companies are overspending on Nvidia chips and building too much infrastructure too quickly.
“We believe AMD’s positive Data Center GPU business outlook and Microsoft’s comments indicating a sustained increase in capex through FY25 bode well” for Nvidia, Goldman Sachs analyst Toshiya Hari said in a note on Wednesday.
Nvidia is expected to report fiscal second-quarter earnings in August.
