Tech's hyperscalers face Wall Street for first time since U.S. Iran war sent oil prices soaring
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The last time tech's hyperscalers addressed Wall Street, three months ago, they announced plans to collectively spend well over half a trillion dollars this year to build out their artificial intelligence infrastructure. That was before the U.S. invasion of Iran caused oil prices to spike and led to a dramatic slowdown in helium production, crucial for semiconductor manufacturing. Meanwhile, the global memory crisis has worsened, forcing tech giants to pay significantly higher prices for data center capacity to meet their growing demand for compute resources.
Despite a roughly 50% jump in oil prices since the start of the Iran-U.S. conflict and an almost 80% increase this year, the group has held up well on Wall Street, with only Microsoft experiencing a decline in stock value for the year. Analysts like Ted Mortonson from Baird describe the market as in a 'complacency phase,' assuming the conflict will resolve quickly. However, Mortonson expresses concern, noting the lack of typical investor panic seen in past market downturns.
Analysts project no massive swings in capex forecasts for 2024. Alphabet, Amazon, and Meta’s estimates align closely with their January guidance, while Microsoft’s expected capex growth of 66% to $107.5 billion is the lowest among the hyperscalers. Amazon CEO Andy Jassy defended the company’s $200 billion spending plan, emphasizing growth over conservatism. Microsoft’s Brad Smith highlighted the need to expand supply when demand exceeds supply.
The rising cost of oil has increased diesel prices by about 42% since the Iran war, impacting data center operations. AI chipmaker Cerebras noted that data center power costs are a significant portion of its operating expenses. The U.S. Geological Survey estimates that Iran’s attack on Qatar’s helium plant halted production, reducing global helium supply by over one-third. Sulfur prices have also risen due to shipping concerns through the Strait of Hormuz.
Tech companies are absorbing increased costs, with Microsoft raising Surface PC prices by hundreds of dollars due to memory and component shortages. IDC forecasts DRAM prices to rise to $9.71 per gigabyte in 2026, up from $3.76 in 2025. Nvidia’s GPU spot prices have surged to $3.82 per hour, up from $2.27 in January.
Analysts like Gil Luria and Will Power from D.A. Davidson and Baird, respectively, highlight the bottlenecks caused by shortages and rising memory costs, which could increase overall expenses. Microsoft’s capex estimate for 2027 has been raised to $180 billion from $161.6 billion, reflecting these pressures.
Despite uncertainties, equity investors remain bullish on the AI trade. Nvidia’s stock reached a record, surpassing a $5 trillion valuation, and Intel’s earnings exceeded expectations. The Nasdaq is up 15% in April, marking its best month since April 2020. Analysts like Skanda Amarnath and Dan Taylor emphasize confidence in the AI-driven growth, stating that being bullish is more advantageous than being bearish.
The upcoming earnings reports will reveal whether rising oil and memory costs will impact forecasts or if companies can mitigate these effects through strategic adjustments.
Source: CNBC