/Nvidia%20logo%20on%20phone%20screen%20with%20stock%20chart%20by%20xalien%20via%20Shutterstock.jpg)
Except for Nvidia (NVDA), which will report its earnings later this month, all other “Magnificent 7” constituents have released their earnings for the December quarter. These companies, which include the so-called “hyperscalers,” are the biggest buyers of Nvidia’s artificial intelligence (AI) chips. Their earnings calls are as important for Nvidia investors as it is perhaps for their investors. In this article, we’ll look at the key takeaways from the recent earnings of Magnificent 7 companies and discuss their implications for Nvidia. Let’s begin by looking at the positives first.
Takeaway #1: AI Capex Is Set to Grow in 2025
Tech companies’ AI capex is set to grow in 2025 and Tesla (TSLA) is the only Magnificent 7 constituent that guided its capex to be “flat” this year. Looking at the other companies, Amazon (AMZN) expects this year’s capex to be over $100 billion. Notably, Amazon’s projected capex for 2025 is significantly higher than its $83 billion capex in 2024. CEO Andy Jassy reiterated his previous views and termed AI a “once-in-a-lifetime type of business opportunity.” The company is putting its money where its mouth is and its 2025 capex is the highest among Big Tech companies.
Meta Platforms (META) expects its 2025 capex to be between $60 billion and $65 billion, which, even at the bottom end of the guidance, is over 50% higher than its 2024 capex of $39.2 billion. The company’s CEO Mark Zuckerberg has termed 2025 the “defining year for AI.” Microsoft (MSFT) expects to spend $80 billion in its fiscal 2025, which will end in June. The company has already spent just over half of that total in the first half.
Alphabet (GOOG) has forecast 2025 capex of $75 billion, which is almost 50% higher than its 2024 capex of $52.5 billion. Last year, during the Q2 2024 earnings call, CEO Sundar Pichai famously said, “The risk of under-investing is dramatically greater than the risk of over-investing for us here, even in scenarios where it turns out that we are over-investing.”
To sum it up, Big Tech companies are set to surpass $300 billion in capex this year, which is music to the ears of Nvidia investors. However, there are also other things that they need to watch out for.
Takeaway #2: Markets Are Questioning AI Spending
The days of markets cheering every mention of AI and lauding rising capex are now over. Alphabet, Microsoft, and Amazon’s share prices plunged after they released their December quarter earnings. While soft guidance and slowing growth are certainly to blame, markets also questioned their growing capex.
Tech companies’ management made great efforts to tell markets that their AI monetization strategy is working. For instance, in its fiscal Q2 earnings call, Microsoft said that its annualized run rate for its AI business is now at $13 billion while Amazon said it has a “multibillion-dollar annualized revenue run rate.”
Numbers, however, are telling a different story. Top-line growth has fallen while growing AI capex has taken a toll on profits and cash flows. There weren’t many buyers of Amazon CEO Andy Jassy’s optimism over AI capex as he pitched it as a long-term investment saying “I think that both our business, our customers and shareholders will be happy, medium to long term, that we’re pursuing the capital opportunity and the business opportunity in AI.”
As I have noted previously, tech companies’ inability to monetize AI capex efficiently and shareholders’ exasperation with these investments (or rather the lack of immediate and commensurate return on investment) are among the biggest risks for Nvidia investors and we saw some of it play out during the recent earnings.
Takeaway #3: Nvidia’s Biggest Customers Could Turn into Competitors
So far, Nvidia has had a literal home run with its AI chips as fellow Magnificent 7 peers have lined up at its doors to grab more of them to fulfill their AI ambitions. However, these hyperscalers are also developing their own custom chips which means they might need fewer of Nvidia’s.
During the Q2 earnings call, Amazon talked about its Trainium2 chip which it said offered “better price performance” and companies like Adobe (ADBE) and Qualcomm (QCOM) witnessed “impressive results in early testing” with these. Jassy added, “It’s also why you’re seeing Anthropic build their future frontier models on Trainium2.” Alphabet is also building its custom-designed Tensor Processing Units (TPUs) which D.A. Davidson termed the "most compelling alternative to Nvidia GPUs.”
Finally, while these are still early days and some see the AI capex as just getting started, there are signs that the growth might not be as stellar as in 2025. Microsoft for instance said that its capex growth rate in fiscal year 2026 will be lower than the current year. CFO Amy Hood said during the fiscal Q2 earnings call that the “mix of spend will begin to shift back to short-lived assets, which are more correlated to revenue growth.” The fact that these comments came from the management of Microsoft, whose stock has underperformed badly over the last year amid concerns over its ability to monetize its burgeoning AI capex, says a lot.
All said, for now, tech companies’ coffers are wide open for AI capex which should keep Nvidia’s cash registers ringing. However, given how central its AI chips have become for its business, tech companies scaling back their AI capex continues to remain the biggest risk for Nvidia.
