microsoft (MSFT -1.32%) The company made headlines late last week when it announced it would spend $80 billion this year to build data centers to train artificial intelligence (AI) models and process AI and cloud-based applications around the world. More than half of the investment will be in the US
To put into perspective the amount of money Microsoft is spending on AI infrastructure, it exceeds the gross domestic product (GDP) of many countries, including Croatia and Lithuania (to name just two).
Microsoft’s Azure cloud has been a big winner for AI, with the division’s revenue increasing 33% year over year last quarter and Azure OpenAI usage doubling over the past six months. However, the company said that growth could be even higher without capacity constraints, as demand for AI services exceeds production capacity.
There were certainly clues that the company was about to move forward with major construction work at its data center. Finance lease commitments for data centers where construction has not yet begun totaled $108.7 billion. These leases were scheduled to take effect from fiscal year 2025 to fiscal year 2030, with lease terms ranging from one to 20 years.
Nvidia will be the big winner
Given the strong demand for Microsoft’s cloud business, I think Microsoft will benefit from increased data center spending. And I believe in Nvidia (NVDA -3.00%) You will be the ultimate winner from this expenditure. Not all of that $80 billion will be spent on graphics processing units (GPUs) and AI accelerator chips (Nvidia’s specialty products), but a significant portion will be.
For reference, Microsoft’s capital expenditures (capex) for fiscal year 2024, which ended in June, were $44.5 billion, most of which went to data centers and cloud computing. The company said that about half of its capital spending will be on long-lived assets, with the other half on central processing units (CPUs) and GPU servers.
Microsoft became Nvidia’s largest customer in 2024, purchasing a reported 485,000 GPUs. This is more than double that of our second largest customer, Meta Platforms. All told, Nvidia’s biggest customers will spend significantly more on GPUs in 2025 than they did in 2024, which is a big win for the company.
Additionally, Microsoft’s finance lease, which has not yet begun, indicates that the company has no plans to stop spending on data centers this year. If $40 billion of capital spending goes to long-term assets like leases, less than half of those leases will begin this year.
Additionally, the huge spending announcement could lead to even more spending on AI infrastructure by other Nvidia customers. Big tech companies like Alphabet and Meta Platforms are emphasizing the importance of AI and that the biggest risk is underspending, not overspending. On the other hand, I think it’s fair to say that there are some pretty big egos in the tech world, and many executives want to win the AI race. So I wouldn’t be surprised if other major hyperscalers (companies that operate large data centers) also increase their spending.
Nvidia remains the king of GPUs, holding around 90% market share in this space. The company’s CUDA software platform, which allows developers to program chips for a variety of tasks, proved to be a major differentiator and created a wide moat for the company. NVIDIA appears poised to remain the biggest winner in AI infrastructure, as rival Advanced Micro Devices continues to lag behind in its own software.
The company’s toughest competition may come from custom AI chips that companies like Broadcom and Marvell Technologies are helping customers develop. These chips are designed to perform very specific tasks, so they can do them better than the more flexible GPUs.
But these chips are also customer-specific. And for large-scale, high-volume deployments, Nvidia and its GPUs remain the quickest and easiest way to build large-scale AI infrastructure projects and will continue to hold significant market share.
Image source: Getty Images.
Is Nvidia stock a buy?
There’s still a big opportunity for NVIDIA as companies continue to pour money into AI infrastructure. The fact that the company’s largest customers are significantly increasing their investments in this space is a great sign that the company will continue to experience outsized growth in 2025.
Nvidia stock continues to trade at an attractive valuation, with a forward price-to-earnings ratio (P/E) of only about 31.4x and a price-to-earnings ratio (PEG) of 0.98x based on 2025 analyst estimates. In general, a stock with a PEG below 1 is considered undervalued, and growth stocks often have a PEG well above 1.
NVDA PE Ratio (Forward 1y), data by YCharts.
With the company expected to be the biggest beneficiary of Microsoft’s $80 billion data center buildout and its stock price remaining attractively priced, Nvidia remains a solid choice for investors. are.
Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Geoffrey Seiler is with Alphabet. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends Broadcom and Marvell Technology and recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
