The big tech earnings week has made us feel more confident about our investments in Nvidia, Broadcom and Eaton, as spending on AI chips and data centers remains clear priorities. The quarterly reports issued by Club Holdings Alphabet, Microsoft, Meta Platforms and Amazon this week varied in overall quality, but the common thread woven through them all was a continued commitment to significant investments in AI. Importantly, all four companies indicated that their investments – reflected in their capital expenditures, or capex forecasts – were gaining strength. Capital expenditures are money spent to purchase or upgrade physical assets, including the construction of data center buildings and the computers inside them. Nvidia, Broadcom, and Eaton are expected to benefit from this continued spending: Nvidia is the dominant manufacturer of AI chips; Broadcom as a partner with Alphabet in the AI chip owned by parent Google and a provider of broader data center networking technology; Eaton is a supplier of electrical components and power systems used to power data centers. Of the three companies, Nvidia is the biggest winner, given how much of its overall revenue is tied to AI initiatives, followed by the more diversified efforts of Broadcom and Eaton. However, Broadcom and Eaton's exposure to the rapidly growing AI market is part of our investment cases for both companies. For its part, Eaton's earnings report Thursday morning reinforced our thesis, offering an upbeat outlook for 2024 that includes strength in its data center business. Nvidia is scheduled to report its quarterly results on February 21, while Broadcom is expected to follow shortly thereafter. Big Tech Spends AMZN 1Y on Amazon Stock's Performance Over the Past 12 Months. Amazon's capital expenditures are expected to increase year over year in 2024, CFO Brian Olsavsky said Thursday. The chief drivers of the rise will be infrastructure investments to fuel growth in its Amazon Web Services (AWS) cloud computing unit, the CFO said. These include initiatives related to generative artificial intelligence and large language models. Amazon's stunning quarter released Thursday evening sent its shares up 8% on Friday. Amazon did not provide specific guidance for capital expenditures for 2024, but analysts are modeling about $60 billion, according to estimates compiled by FactSet. Amazon's capital expenditures fell about 17% year over year in 2023 to $48.4 billion, as the company reduced spending on its e-commerce logistics network. Some of Amazon's spending will likely go toward dedicated AI chips, known as Trainium and Inferentia. But the Seattle-based tech giant is also buying Nvidia chips. In a post-earnings call Thursday, CEO Andy Jassy said AWS offers “the broadest portfolio of compute instances using Nvidia chips.” In November, the two companies announced an expanded partnership to bring Nvidia's DGX Cloud supercomputer service to AWS. META 1Y Mountain Meta Platforms stock performance over the past 12 months. Combined with its surprising earnings report late Thursday, which sent shares up more than 20% on Friday, Meta Platforms raised the upper end of its full-year capital expenditures forecast to $37 billion from $35 billion. The parent company of Instagram and Facebook left the bottom end of its guidance unchanged at $30 billion. In 2023, Meta's total capital expenditures were $27.3 billion, down from $31.4 billion the previous year. Chief Financial Officer Suzanne Lee said the expected growth in 2024 is driven by spending on servers — both AI-specific servers containing AI chips like Nvidia's and those dedicated to more general computing — and building data centers designed to better handle the needs of AI workloads. . Earnings call. “Although we do not provide guidance for years beyond 2024, we expect our ambitious long-term efforts in AI research and product development to require increased investments in infrastructure beyond this year,” Li said. CEO Mark Zuckerberg has confirmed that Meta is on track to have 350,000 of Nvidia's top AI chips, known as the H100, by the end of the year. Taking into account other processors, Meta's AI-focused computing infrastructure would be equivalent to roughly 600,000 H100s, Zuckerberg said. Meta said it has also ordered Advanced Micro Devices' new AI chip, the MI300X, which was launched late last year as a replacement for Nvidia. The social media giant has plans to use custom chips for some AI tasks as well. MSFT 1Y Microsoft stock performance over the past 12 months. Late Tuesday, Microsoft — one of Nvidia's biggest recent chip buyers — said it expects capital expenditures in the current quarter to increase “materially” compared to the three months ended Dec. 31. In the previous period, which was Microsoft's fiscal 2024 second quarter, the company spent $9.7 billion on property, plant and equipment. Wall Street expects the total to reach $11.64 billion in the current quarter, according to estimates compiled by FactSet. “These data center investments support our cloud demand, including our AI infrastructure scaling needs,” CFO Amy Hood said on the call. Microsoft's previous spending has already translated into financial gains, as its cloud computing unit Azure grew 30% year over year in its fiscal second quarter, with AI services notably contributing six points of growth. In fact, Azure's growth rate exceeded that of AWS and Google Cloud for the second quarter in a row. This is further evidence of Microsoft's emerging leadership position in AI, rooted in its close partnership with OpenAI, the startup whose chatbot ChatGPT went viral in November 2022 and sparked a wave of ongoing generative investment in AI. Microsoft has also placed orders for AMD's MI300X. GOOGL 1Y The stock performance of Google's parent company Alphabet over the past 12 months. Alphabet expects its capital expenditures in 2024 to be “significantly larger” than in 2023, which totaled $32.5 billion, Chief Financial Officer Ruth Porat said on an earnings call Tuesday evening. Alphabet did not provide specific numbers, but analysts currently expect full-year capital expenditures to be about $41 billion, representing 26% year-over-year growth, according to FactSet. In the company's fourth quarter, capital expenditures rose 37% sequentially to $11 billion, driven largely by spending on servers followed by data centers, Porat said. Alphabet's spending on AI chips is typically split between its custom chips designed in partnership with Broadcom, known as Tensor Processing Units (TPUs), and Nvidia's offerings. In this way, both Broadcom and Nvidia are poised to benefit from Alphabet's server spending. Last August, Alphabet announced the fifth generation TPU, which the company has traditionally used in its internal AI work. At the time, Alphabet also detailed an expanded partnership with Nvidia that brought its DGX supercomputing service to Google Cloud. For all of Broadcom's fiscal 2023 numbers — which were released with fourth-quarter earnings in December — the company generated roughly $2.8 billion in revenue from its “AI accelerator,” which is the code name for TPUs. Including networking products that bring parts of a data center together, about 15% of Broadcom's semiconductor revenue was tied to generative AI spending in fiscal 2023. The company expects that to rise to more than 25% in the current fiscal year 2024. (Jim Cramer's Charitable Trust is long NVDA, AVGO, ETN, MSFT, GOOGL, META, and AMZN. See here for a complete list of stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim places a trade . Jim waits 45 minutes after a trade alert is sent before buying or selling a stock in his charitable fund's portfolio. If Jim talks about a stock on CNBC TV, he waits 72 hours after the trade alert is issued before executing the trade. The above Investment Club information is subject to our Terms and Conditions and Privacy Policy, as well as our Disclaimer. No obligation or fiduciary duty exists or is created by your receipt of any information provided in connection with the Investment Club. 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A week of big tech earnings has made us feel more confident about our investments in them Nvidia, Broadcom And Eaton Spending on AI chips and data centers remains clear priorities.
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