Nvidia jumps more than 15% this week. A key reason: what other companies are saying

Published Fri, Apr 26 20241:41 PM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

A week ago, Nvidia suffered its third-worst session on record, plunging 10%, in a broader wreckage for artificial intelligence stocks. Those losses have now been completely erased and then some – and not because of anything the AI chip king has said or done. 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. Week to date, the chip stock surged more than 15% – the best in the portfolio over that stretch. "These are big checks made out to get Blackwells and H200s from, yes, Nvidia," Jim Cramer said during Friday's Morning Meeting . Nvidia debuted its latest chip architecture, Blackwell, in March. Nvidia unveiled the high-end H200 in November . To be sure, the companies' spending on AI computing – represented in their capital expenditures – also covers things such construction of data center buildings and money spent on their custom chips. Still, Nvidia's chips are a key part of those budgets. 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. "There are a lot of people … that think this stock is a dangerous stock," Jim said. "I continue to say 'own it, don't trade it.' I have not changed my view at all." NVDA YTD mountain Nvidia's year-to-date stock performance. Meta Platforms fired a dramatic shot in the AI spending battle after Wednesday's close. Alongside 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. That change – paired with light second-quarter revenue guidance – tanked Meta's formerly red-hot stock in Thursday's session by 10.56%. 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, which launched last year its most-competitive chip yet to rival Nvidia, and Club name Broadcom , which co-designs Meta's custom processors. Alphabet and Microsoft kept the party going after the close Thursday. Unlike Meta, their quarterly results were great for both their own stocks and Nvidia shares. 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. The spending was driven by spending on "technical infrastructure," such as AI servers, which contain chips, as well as data centers, which house the servers. The kicker: 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, FactSet data shows. About 90% of Alphabet's capex will go to technical infrastructure, Porat said on Alphabet's post-earnings conference call. Nvidia is the largest supplier of AI chips to Alphabet, Bank of America said, with analysts also noting that Broadcom stands to gain. Broadcom has long been Alphabet's design partner on the Tensor Processing Unit, which is Google's custom AI chip now in its fifth generation. Broadcom's AI business is central to why we took a stake in it in August. Microsoft reported slightly lighter-than-expected capex for the three months ended in March – its fiscal 2024 third quarter – at $10.95 billion versus the $11.77 billion estimate. But finance chief Amy Hood said on Thursday's post-earnings call that Microsoft expects a "material" quarter-over-quarter increase in capex, fueled by spending on cloud-computing and AI infrastructure investments. Notably, Microsoft projects a year-over-year increase in capex in its upcoming fiscal 2025, which begins in July, Hood said. "Currently, near-term AI demand is a bit higher than our available capacity," Hood said. As a major investor in the ChatGPT-creator OpenAI, Microsoft has seen growth in its cloud-computing Azure accelerate due to its AI prowess. Nvidia is the biggest supplier of AI chips to Microsoft, according to Bank of America, followed by AMD and, to a lesser extent, Microsoft's recently launched in-house chips. 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. 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 still booming. 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. Amazon's numbers may only reinforce the obvious. (Jim Cramer's Charitable Trust is long NVDA, MSFT, GOOGL, AMZN and META. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

NVIDIA's founder and CEO Jensen Huang delivers a keynote address on the latest innovations in AI, during a developers conference at the SAP Center in San Jose, California, on March 18, 2024.

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