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Nvidia shares rebounded on Wednesday after Microsoft said it would continue to invest heavily in the technical infrastructure that powers artificial intelligence, showing investor sensitivity to the spending plans of some major tech companies.
Chip stocks include Nvidia, Arm and AMD decline on Tuesday ahead of Microsoft’s latest earnings report. Concerns about the sustainability of last year’s epic AI rally grew after Google’s quarterly numbers last week, sparking a volatile few days for tech investors that wiped nearly $500 billion off Nvidia’s value in just over a week.
Shares of Microsoft fell nearly 2 percent in New York on Wednesday after the Seattle-based company almost missed expectations for cloud growth are high. But comments from executives that demand for their AI services continues to outpace available computing power, a problem that has spurred continued investment in data centers, have boosted sentiment around their semiconductor suppliers.
Nvidia jumped more than 10 percent on Wednesday, while AMD — which reported strong demand for its Artificial intelligence chips on Tuesday evening — up 6 percent. Shares of Arm, the UK-based chip design company, also rose 6 percent.
The gains helped the Nasdaq rebound from Tuesday’s decline, rising 2.3 percent after the opening bell.
Microsoft said sales of its closely watched Azure cloud computing platform rose 29% year-on-year in the quarter to June 30, missing forecasts for growth of 30-31% and down from the previous quarter’s 31% growth.
Microsoft’s capital spending in the quarter ended June 30 was $19 billion, up nearly 80 percent from the same period last year and exceeding Wall Street forecasts. “Nearly all” of that was cloud and AI-related spending, CFO Amy Hood said, and those investments will pay off in the second half of the year as Azure growth “accelerates.”
Analysts at TD Cowen said Wednesday they raised their capital spending forecast for Microsoft from $70 billion to $84 billion for fiscal 2025.
Hood said half of Microsoft’s capital spending is on land, construction and leasing, which “will actually be monetized over 15 years and beyond,” while the other half is spent on technical equipment, including chips and servers, which will be “based on demand signals.”
“We believe this new disclosure will help ease investors’ concerns about the timing of the conversion of capital expenditures into revenue,” analysts at Deutsche Bank said in a note on Wednesday.
Tech companies including Google, Amazon, Microsoft and Meta are investing tens of billions of dollars a year in data center capacity to support what they believe is a massive wave of AI applications, following rapid adoption of OpenAI’s ChatGPT since its launch nearly two years ago.
Analysts at CFRA said they expect Amazon to “step up” capital spending this year to support both its logistics network and AI-enabled infrastructure, predicting the total for 2024 could reach about $64 billion, up from $52.7 billion in 2023.
Nvidia CEO Jensen Huang said in an onstage conversation with Meta CEO Mark Zuckerberg that the social media giant has installed about 600,000 of its latest AI chips. “You guys are bigger than anybody,” he said, to which Zuckerberg responded with a grin: “We’re good customers.”
But even as tech leaders brag about their AI prowess, investors have grown increasingly cautious about the short-term returns from that spending in recent weeks.
“The market is moving in recognition that earnings growth at these Big Tech names is almost certain to slow,” said Manish Kabra, chief U.S. equity strategist at Société Générale. “Is Nasdaq up more than 35 percent a year? Maybe, but probably not. So the market is swinging, with traders rotating in and out of names like Nvidia.”
Chip stocks were further boosted by a Reuters report on Wednesday that new U.S. export restrictions on semiconductor manufacturing equipment to China would exempt allies including the Netherlands and Japan, whose main suppliers are ASML and Tokyo Electron. ASML shares rose 5 percent following the report.
