Investors should pay close attention to what tech executives are saying about spending on artificial intelligence (AI).
NVIDIA (NVDA -3.18%) The stock has more than doubled so far this year, but you wouldn’t know it just from looking at the past six weeks: Nvidia shares have fallen more than 20% in that time and were down another 3.4% as of 11:25 a.m. ET today.
On the surface, today’s moves appear to be part of a sector rotation away from growth tech stocks and towards more value-oriented, dividend-focused names. Economic news weighing on investor sentiment also includes today’s employment report, which showed a weaker-than-expected 114,000 jobs created in July. The unemployment rate also rose to 4.3%.
Both figures have investors worried about a potential economic downturn, which would likely curb the explosive revenue growth Nvidia has achieved over the past 18 months. But macroeconomic conditions aren’t the only thing Nvidia investors should consider.
Artificial intelligence spending on the rise
Yesterday saw the release of quarterly reports from tech giants Amazon and Apple. Other recent earnings reports came from Microsoft, Meta Platforms and Alphabet. Attention was focused on what these companies would say about capital expenditures related to the expansion of their artificial intelligence (AI) platforms. While some say this was no surprise to Nvidia supporters, it nonetheless accelerated the stock’s decline.
During an earnings call with investors, Microsoft highlighted its AI investments. Microsoft CEO Satya Nadella acknowledged the investment in NVIDIA, but also mentioned its own Azure Maia chips. Not unexpectedly, NVIDIA investors are concerned that the competition for advanced chips could slow its own sales growth.
But AI spending still appears to be accelerating: Alphabet told investors that it “expects to increase capital expenditures, particularly in support of our artificial intelligence (AI) products and services.”
In fact, quarterly capital expenditures are up year over year for all of the tech companies mentioned above. Increases range from about 3% for Apple to more than 90% for Alphabet. Nvidia investors needn’t worry: The company is likely to support much of its spending, as well as receive investment from others, as demand outstrips supply.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and communications at Facebook and sister of 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 owns positions in Alphabet, Amazon, Apple, Microsoft, and NVIDIA and owns options and short September 2024 $240 calls on Apple. The Motley Fool owns positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and NVIDIA. The Motley Fool recommends long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
