This earnings season, investors are laser-focused on the capital expenditures of Big Tech giants like Microsoft, Amazon, Meta, and Alphabet. These investments are seen as a measure of their confidence in the transformative power of AI. However, as Julie Hyman noted, the reality is more nuanced; these companies must commit heavily just to stay competitive.
“Effectively what we’ve heard is that nobody is blinking.”
Denny Fish, Portfolio Manager at @JHIAdvisors, says Big Tech isn’t stopping its investments on AI, resulting in continued Nvidia growth https://t.co/MBYx2gMChj pic.twitter.com/wMB0ngFSLE
— Bloomberg TV (@BloombergTV) August 1, 2024
Supply chain dynamics play a crucial role, much like how snowmelt feeds rivers and lakes. As our Chart of the Week illustrates, Big Tech is still pouring in massive investments, and Nvidia is the primary beneficiary. Estimates from Bloomberg, along with quarterly reports, reveal that over 40% of Nvidia’s revenue comes from the tech titans collectively known as the “Magnificent Seven” — Microsoft, Meta, Alphabet, and Amazon.
Leading the pack is Microsoft, whose spending contributes a staggering 19% to Nvidia’s revenue, making it the chipmaker’s largest customer by a significant margin. This investment nearly doubles that of Meta and triples the contributions from Alphabet and Amazon.
Microsoft, Nvidia, Procter & Gamble and Merck were among the big cap stocks that pushed S&P 500 and Nasdaq lower on Tuesday https://t.co/GIS7B9eNF6 pic.twitter.com/iM7r9nPFWA
— Reuters (@Reuters) July 31, 2024
Bloomberg’s data further highlights that Nvidia constitutes 45% of Microsoft’s capital expenditures, a stark contrast to the 15% it represents for Alphabet. This underscores the pivotal role Nvidia plays in Microsoft’s AI strategy.
In the AI landscape, this data underscores a crucial point: chipmakers like Nvidia reap the rewards first, well before hyperscalers can translate AI investments into substantial revenue streams for investors. This relationship is a cornerstone of the market’s momentum, particularly evident during the tech earnings season.
For now, investors remain optimistic despite the absence of immediate revenue boosts, trusting that Microsoft’s strategic moves indicate a deeper understanding of AI’s long-term potential. However, skepticism is beginning to surface, as the market eagerly awaits tangible returns from these massive investments.
Major Points
- Investors are closely watching Big Tech’s capital expenditures as a gauge of confidence in AI.
- Microsoft, Meta, Alphabet, and Amazon contribute over 40% of Nvidia’s revenue.
- Microsoft alone accounts for 19% of Nvidia’s revenue, its largest customer.
- Nvidia makes up 45% of Microsoft’s capital expenditures, highlighting a significant investment in AI.
- Despite rising doubts, investors remain optimistic about AI’s long-term potential and Big Tech’s strategic insights.
Susan Guglielmo – Reprinted with permission of Whatfinger News
