Investors should look closely at what tech executives are saying about artificial intelligence (AI) spending.
Nvidia (NVDA -2.09%) stock has more than doubled year to date. But you wouldn’t know it if you just looked at the last six weeks. Nvidia shares have plunged more than 20% in that time, including another 3.4% today, as of 11:25 a.m. ET.
On the surface, today’s move looks to be part of a sector rotation out of growth tech stocks and into more value-oriented and dividend names. Economic news contributing to negative investor sentiment included today’s jobs report. A lower-than-expected 114,000 jobs were created in July. The unemployment rate also moved higher to 4.3%.
Both figures have investors concerned about a potential recession. That would likely stem the explosive sales growth that Nvidia has seen over the last 18 months. But there’s more than just the macroeconomic picture for Nvidia investors to consider.
Artificial intelligence spending grows
Quarterly reports were released yesterday from tech giants Amazon and Apple. Other recent earnings reports came from Microsoft, Meta Platforms, and Alphabet. All eyes were on what these companies said about capital spending related to expanding artificial intelligence (AI) platforms. Some said it shouldn’t have come as a surprise to Nvidia followers, but it fueled the stock sell-off nonetheless.
In its earnings conference call with investors, Microsoft highlighted capital investments driven by AI. Microsoft CEO Satya Nadella acknowledged spending with Nvidia, but also noted its own custom-built Azure Maia chips. While not unexpected, that has Nvidia investors concerned that competition for advanced chips will slow its own sales growth.
But AI spending still seems to be accelerating. Alphabet told investors it has the “expectation that our capital expenditures will increase … in particular in support of artificial intelligence (AI) products and services.”
In fact, quarterly capital expenditures increased year over year for all the above-mentioned tech companies. The increases ranged from about 3% from Apple to more than 90% from Alphabet. Nvidia investors shouldn’t worry. The company is likely to support much of that spending, as well as getting investments from other companies as demand outpaces supply.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Howard Smith has positions in Alphabet, Amazon, Apple, Microsoft, and Nvidia and has the following options: short September 2024 $240 calls on Apple. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
