The Winners of Hyperscalers’ Big Spending Plans: Chip Companies like Nvidia

Investors concerned about the future of chip stocks, particularly in the context of AI technology investments, can breathe a sigh of relief. In a recent move signaling continued commitment to large-scale capital spending, Amazon has joined three other major tech companies—Microsoft, Meta, and Alphabet—in outlining significant expenditures aimed at advancing AI capabilities. During Amazon’s fourth-quarter earnings call, CEO Andy Jassy revealed that the company allocated a staggering $26.3 billion for capital expenditures in the quarter, a pace likely to continue through 2025, primarily directed towards enhancing its Amazon Web Services (AWS) division focused on AI.

This latest forecast from Amazon contributes to a remarkable total of approximately $280 billion committed by these four tech giants for AI data centers by 2025. Microsoft has pledged $80 billion in its fiscal 2025 (ending June 30), while Meta announced a budget of between $60 billion to $65 billion, and Alphabet signaled a commitment of $75 billion. Additionally, some of Amazon’s capital will support its retail distribution system, indicating a multi-faceted approach to technological improvement.

AI and Cloud Capacity: A Major Focus

In their respective earnings calls, Amazon, Microsoft, and Alphabet highlighted a concerning point: the inability to meet the increasing demand for cloud computing capacity, with their cloud services underperforming relative to analysts’ expectations in the latest quarter. This has resulted in stock performance challenges for these companies. For Amazon, the future looks rather “lumpy” in terms of cloud growth; however, there is unbridled enthusiasm surrounding AI.

Jassy emphasized the historical significance of AI, stating, “AI represents for sure the biggest opportunity since cloud, and probably the biggest technology shift and opportunity in business since the internet.” This sets the stage for the next chapter in technology’s evolution, with AI at the forefront.

Nvidia: The Primary Beneficiary

As tech giants ramp up spending on AI, Nvidia Corp. (NVDA) is poised to be the biggest beneficiary. Despite facing challenges previously, including a plummet in its stock following revelations regarding China’s DeepSeek utilizing older, less expensive Nvidia GPUs for AI model training, Nvidia shares have begun to recover. However, they remain approximately 13% lower than their prices prior to the DeepSeek reports. Investors continue to have concerns over whether Nvidia will be able to market its most advanced Blackwell family of AI chips.

The pressure is on Nvidia as hyperscalers and cloud-service companies might start exploring ways to lower their costs, similar to the strategy adopted by DeepSeek, which may involve the use of more affordable chip alternatives. Yet, regardless of potential competition, Nvidia stands to gain from the general growth in AI investments.

Industry Shifts: Exploring Cost-Effective Solutions

Amazon’s earnings call hinted at a broader industry trend where companies are actively seeking to reduce computing costs. Jassy noted, “What you heard the last couple of weeks out of DeepSeek is a piece of it, but everybody is working on this. I believe the cost of inference will meaningfully come down.” Inference refers to the AI process of making predictions based on previously trained data, and cost reductions in this area could have significant implications across the sector.

Beyond Nvidia: Other Chip Beneficiaries

While Nvidia remains a focal point, other semiconductor companies are expected to reap benefits from ongoing AI capital investments. Broadcom (AVGO) and Marvell Technology (MRVL), which collaborates with Amazon on its Trainium chip family, are likely candidates. Meanwhile, Advanced Micro Devices Inc. (AMD) faces scrutiny after deciding to stop forecasting separate revenue for its MI300 AI chip line, raising questions about its market position.

The anticipated spending plans could also boost computer hardware firms such as Dell Technologies (DELL), Super Micro Computer Inc. (SMCI), and Hewlett Packard Enterprise Co. (HPE). However, it’s worth noting that these hardware companies operate with very slim profit margins in their server operations. Earnings reports from these companies are set to be released soon, starting with Super Micro on February 11.

Factors That Could Influence Future Spending

While tech giants have announced ambitious spending strategies, these plans could be vulnerable to external influences such as tariffs, rising interest rates, and the strength of the U.S. dollar. Nonetheless, the recent succession of reassuring earnings reports over the past ten days suggests that the current tech investment boom is far from over.

In conclusion, the commitment of large players like Amazon, Microsoft, Meta, and Alphabet to substantial AI capital expenditures is a sign of optimism in the tech sector. For investors, chip manufacturers like Nvidia and others in the supply chain stand to benefit significantly from this ongoing wave of investment, affirming that the future of AI technology continues to look bright.