Meta CEO Mark Zuckerberg Just Delivered Great News for Nvidia and Micron Investors
Big tech earnings are in after Meta Platforms (META), Alphabet, Amazon, and Microsoft all delivered their quarterly reports Wednesday afternoon, with a clear theme: AI spending continues to rise and cloud computing revenues are soaring. Google Cloud reported 63% growth, Microsoft Azure was up 39%, and Amazon Web Services delivered 28% growth. The news confirmed that the AI boom remains in good health and is even accelerating, given the improving growth rates in cloud computing.
With AI spending heating up, there are a number of winners across the semiconductor sector, but Nvidia (NVDA) may be the most obvious one. The data center GPU leader is a major supplier for all the hyperscalers and is likely to be a significant recipient of increased capital expenditure (Capex), especially with its new Rubin platform scheduled to come online in the second half of the year.
One comment from Meta Platforms CEO Mark Zuckerberg was particularly promising for Nvidia and its peers. Meta itself delivered strong results in the first quarter, with revenue jumping 33%, fueled by a 19% increase in ad impressions and a 12% increase in average price per ad. However, the stock fell as the company hiked its capital expenditures forecast for the year from $115 billion–$135 billion to $125 billion–$145 billion. Zuckerberg explained that the increase was needed due to higher component costs, particularly memory pricing, and that much of the $10 billion increase in spending would go toward chips. Higher prices are a better way for these chipmakers to grow revenue than increased capacity because higher prices translate into higher margins. Both Nvidia and Micron have already seen gross margins boom.
The increase in forecasts shows that the AI investment boom is still relatively early. Alphabet, for example, said it would spend significantly more on Capex in 2027, and other big tech companies are likely to follow. The performance by the big tech cohort shows why chip stocks have soared and also explains why SaaS stocks have gotten hit so hard. Chip stocks still look cheap compared to high-profile SaaS stocks, which trade at 20 times sales despite Meta’s 33% revenue growth and a P/E of 24. Nvidia trades at a P/E of 43 despite growing 73% in its most recent quarter, while Micron trades at a P/E of 24 and is growing even faster. Semiconductor stocks have historically been cyclical, and investors still seem skeptical that this kind of growth can continue. However, based on the Capex commentary from Meta and its peers, investors should expect it to accelerate and see several more years of strong growth.
Source: The Motley Fool