The Stock of NVIDIA is Set to Rise Ahead of a Pivotal Stretch for the Technology Industry

This week, semiconductor investors will closely monitor the earnings reports of major cloud-computing companies, as these updates offer key insights into the growth of artificial intelligence (AI) and its impact on the semiconductor sector. The lineup of reports begins with Alphabet Inc. on Tuesday afternoon, followed by Meta Platforms Inc. and Microsoft Corp. on Wednesday, and Amazon.com Inc. rounding out the week on Thursday.

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The reports are critical for those invested in semiconductors and AI-related hardware, as they provide data on two essential factors: recent cloud growth and future capital expenditure plans. According to Ben Reitzes, an analyst at Melius Research, the cloud business growth rates directly influence perceptions of AI's return on investment (ROI). In his projections, Reitzes expects cloud growth rates of 31% for Alphabet, 19% for Amazon, and 33% for Microsoft.

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Cloud companies have been investing heavily in AI, but concerns persist about whether this spending will generate the expected returns. While businesses may currently be investing to stay competitive in the AI race, sustained investment depends on achieving an attractive ROI. This is especially important for semiconductor companies like Nvidia Corp., which rely on AI-driven demand for their hardware.

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So far, Nvidia’s stock has benefited significantly from AI demand, having gained 185% this year despite a slight dip of 0.4% on Monday morning. Investors remain optimistic about the company's future prospects, particularly regarding its new Blackwell chip, which is expected to be a key growth driver in early 2025.

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Reitzes emphasized that this week’s primary focus will be on whether cloud companies push their capital expenditures into the fourth quarter of this year or even into 2025, as they prepare for the availability of Nvidia's Blackwell chips and associated systems. The timing of these spending plans will be a crucial indicator of AI demand and growth potential for semiconductor companies.

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The financial guidance provided by cloud companies will be especially important for gauging future demand. Reitzes predicts that Alphabet’s capital spending will likely increase next year but cautions that the company may not significantly revise its projections in the immediate term. This earnings report will be Alphabet’s first under a new chief financial officer, so there may be some uncertainties around long-term spending plans.

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Alphabet’s report will set the stage for the rest of the week, as its capital expenditure guidance has broad implications for the tech sector, particularly for companies like Broadcom. Broadcom is expected to benefit significantly from Alphabet’s spending on training its next-generation large language models. Nvidia also stands to gain from these developments, as AI hardware demand continues to rise.

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Meanwhile, Microsoft’s last earnings call indicated plans for increased spending, but Reitzes believes the company may pause upward revisions for now. Amazon, on the other hand, is in a more pressing situation. To sustain the rapid growth of its Amazon Web Services (AWS) cloud-computing business, the company will need Nvidia’s Blackwell chips. AWS, which has been a leader in cloud services, is heavily reliant on cutting-edge AI hardware to maintain its competitive edge.

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In conclusion, semiconductor investors will be watching closely this week to assess the broader AI trend and its impact on cloud growth and capital expenditure plans. With Alphabet, Microsoft, and Amazon all playing major roles in AI development, their financial outlooks will have significant implications for companies like Nvidia and Broadcom. Cloud computing and AI continue to drive the semiconductor market, and the insights provided in this week’s earnings reports will help investors gauge whether the sector's rapid growth will be sustained in the coming quarters.

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