Microsoft and Google parent Alphabet announced increased spending on data center hardware to support artificial intelligence initiatives late Thursday. The news drove AI stocks higher on Friday, including top names Nvidia and Super Micro Computer.
Earlier this week, Meta Platforms and Tesla also announced elevated capital expenditures related to AI. That news goosed AI stocks, especially semiconductor stocks.
"AI spend has largely fueled optimism around the semi complex and we see no reason to believe this dynamic changes in the near term," Wedbush Securities analyst Matt Bryson said in a client note.
Increased spending on AI infrastructure has positive implications for several chipmakers, Bryson said. They include Nvidia, AMD, Broadcom and Marvell Technology, he said.
Long-Term Tailwind For AI Stocks
BofA Securities analyst Vivek Arya thinks the AI megatrend will provide a long-term tailwind for semiconductor stocks exposed to the market.
"In our view, the upfront AI buildout cycle could last at least 3-4 years (2023-2027e), with most favorable chip stock upside potential during the first three years (2023-2025)," Arya said in a client note.
He sees five semiconductor stocks as main beneficiaries of the increased investments in AI and cloud data centers. Those AI stocks are: Nvidia, his top pick, as well as Broadcom, Marvell, AMD and memory-chip maker Micron Technology.
Super Micro Stock Surges On News
In a client note, JPMorgan analyst Samik Chatterjee said the increased AI infrastructure spending is a plus for server makers Dell Technologies and Super Micro Computer. The news is also positive for networking gear firms Arista Networks, Coherent and Lumentum.
Google reported first-quarter capex of $12 billion, up 91% year over year, and above the consensus estimate of $9.8 billion. Google expects to keep capex at or above the Q1 level for the rest of the year. That suggests capex of at least $48 billion for 2024, vs. the consensus estimate of $41.6 billion.
Microsoft reported first-quarter capex of $11 billion, up 66% year over year, but modestly below the consensus estimate of $11.3 billion. However, Microsoft expects its capex to increase materially on a sequential basis, driven by cloud and AI investments.
On the stock market today, Nvidia stock rose 6.2% to close at 877.35. AMD advanced 2.4% to 157.40. Broadcom increased 3.8% to 1,344.07. Marvell climbed 3.2% to 69.62. And Micron moved 2.9% higher to 114.84.
Among other AI stocks, data center specialist Super Micro surged 8.9% to 857.44. Arista Networks ended the day flat at 264.70 and Coherent popped 4.1% higher to 55.06. Lumentum increased 3.4% to 43.42.
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