Microsoft quells fears about AI buildout, causing Nvidia shares to soar 11%

• Nvidia's shares surged more than 11% during trading on Wednesday following statements from top clients Microsoft and competitor AMD indicating that there would be no slowdown in the construction of AI servers.
• During the quarter, Microsoft invested $19 billion in capital expenditures, with approximately 60% of that amount going towards hardware.

The stock price of shares increased more than 11% on Wednesday following statements from top customers Microsoft and rival chipmakers indicating that there would be no slowdown in the construction of multibillion-dollar AI servers using GPUs.

Microsoft announced on Wednesday that it will increase its spending on Nvidia-based infrastructure in the upcoming year.

During the quarter, Microsoft invested $19 billion in capital expenditures, with approximately 60% of that amount spent on hardware. Additionally, the tech giant announced that it is experiencing a positive return on investment from its costly GPU-based servers.

Nvidia's AI sales are not tied to an arms race among cloud providers, as the company's remarks on its fiscal fourth-quarter earnings call eased investor worries.

UBS analyst Karl Keirstead wrote in a note on Wednesday that 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."

Since the release of ChatGPT in November 2022, Nvidia has experienced a significant increase in investor interest in artificial intelligence technology, resulting in its stock doubling in value so far in 2024 and rising more than 500% since the launch of ChatGPT.

On Wednesday, Nvidia was named a "top pick" by Morgan Stanley analysts, who predicted that issues such as competitive dynamics, export controls, and supply chain concerns would eventually dissipate.

According to Morgan Stanley analyst Joseph Moore, customers are still committed to investing in multi-modal generative AI despite a market perception that takes a pessimistic view of some hyperscale comments.

Nvidia's chips are moving from the "Hopper" or H100 series to the new Blackwell generation, which may increase sales.

Moore wrote that our checks reveal that customers want to deploy GPUs as soon as possible, and the resilience of the H100 even a few weeks from Blackwell ramping to us alleviates their spending concerns.

Top rival raises AI forecast

On Tuesday, Nvidia's main competitor in the data center GPU market reported better-than-anticipated sales and earnings, and informed investors that demand for its GPU remains robust.

AMD CEO Lisa Su stated that the company anticipates $4.5 billion in AI chip sales this year, representing an 11% rise from its earlier projection.

Microsoft and AMD's data points indicate that investor anxiety about overspending on Nvidia chips and rapid infrastructure building among a few cloud providers and big technology companies may be unfounded.

According to Goldman Sachs analyst Toshiya Hari, Nvidia can benefit from AMD's positive outlook on its Data Center GPU business and Microsoft's indication of a sustained increase in capex through FY25.

Nvidia is expected to report fiscal second-quarter earnings in August.