Large cloud-computing companies are investing heavily in infrastructure to support artificial intelligence initiatives this year. And the spending surge is likely to continue in 2025, investment bank Barclays says. That's good news for Super Micro Computer and Arista Networks.
Barclays analysts now forecast that hyperscale cloud companies will increase their capital expenditures by a combined 41.3% in 2024 and 15.2% in 2025. Last year, cloud capex spending dipped 2.3% after three years of substantial growth.
In a client note, Barclays analysts Tim Long and George Wang said, "2024 is shaping up to be a much stronger spending year for hyperscalers after a softer 2023, and 2025 could be more of the same (stronger spending)."
They added, "These large cloud players are growing capex budgets as they continue to invest heavily to support their AI efforts."
Super Micro Computer, Arista Networks Cited
Two companies seen as major beneficiaries of the trend include data center hardware specialist Super Micro Computer and networking gear maker Arista Networks, Barclays said.
Barclays raised its forecasts for cloud capex spending after the hyperscalers updated their plans with their first-quarter reports. Those hyperscalers include Alphabet, Amazon, Meta Platforms, Microsoft and Oracle.
Barclays predicts capex spending by the five U.S. hyperscalers will reach $218 billion in 2024 and $251 billion in 2025.
2025 Estimate Could Be Low
"Some of our industry contacts believe that 2025 capex growth will be much larger than the current 15% in our models," Long and Wang said. "A lot of this incremental spending will be for GPUs (graphics processing units) and advanced ASICs (application-specific integrated circuits) for AI server deployments."
Nvidia is the top producer of data center GPUs. Broadcom is the main provider of custom ASICs for AI servers.
Super Micro Computer is on two IBD stock lists: Big Cap 20 and Tech Leaders. Arista Networks is on three IBD lists: IBD 50, Big Cap 20 and Tech Leaders.
On the stock market today, Super Micro Computer shares rose 2% to close at 843.12. Arista Networks stock advanced 1.6% to 334.53.
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