Nvidia’s stock experienced a decline on Wednesday, following a broader trend affecting artificial intelligence (AI) companies, including Alphabet, the parent company of Google. Alphabet’s earnings report revealed a continued aggressive investment strategy in cloud and AI infrastructure, which might initially seem positive for Nvidia, a major supplier of AI chips. Despite this, Nvidia’s shares fell by 3% to $118.80, adding to a 0.8% drop the previous day.
Alphabet’s capital expenditures for the quarter ending June 30 were notably high, reaching $13.2 billion, a staggering increase of over 90% year-over-year. CEO Sundar Pichai emphasized the necessity of substantial upfront investment in AI to drive transformation across its core business areas, including search, YouTube, and cloud computing. Pichai stressed the risks of underinvestment in AI, asserting that it outweighs the potential risks of overinvestment.
Alphabet’s President Ruth Porat indicated that capital spending on infrastructure, including compute servers and data centers, would remain at or above the $12 billion level seen in the first half of the year. This level of investment could theoretically be beneficial for Nvidia, given its pivotal role in supplying accelerator chips necessary for handling the large-scale computations required by AI models. Notably, Alphabet highlighted its use of Nvidia’s H100 processors in its high-bandwidth Google Cloud service, A3 Mega, and mentioned the upcoming introduction of Nvidia’s Blackwell accelerator in early 2025.
Despite these developments, Nvidia’s stock did not benefit as expected. Ben Reitzes, head of tech research at Melius, noted in a research report that while Alphabet’s spending could suggest potential upside for Nvidia if cloud and AI search revenue increases, no substantial upward revision in capital expenditure for the current quarter was observed. Reitzes suggested that Nvidia could see revenue benefits if Alphabet continues to ramp up its AI and cloud investments, but this was not yet reflected in the stock’s performance.
Alphabet’s stock was down by 4% on Wednesday morning, leading a sector-wide decline. Other AI chip manufacturers also saw losses, with Advanced Micro Devices (AMD) and Broadcom shares falling by 4% and 4.5%, respectively. On the other hand, Texas Instruments bucked the trend with a 1% increase in its stock price, following strong quarterly earnings that highlighted its stability amidst geopolitical uncertainties impacting the semiconductor sector.
Nvidia’s stock has seen impressive gains this year, surging by 148%, and briefly overtook Microsoft as the world’s most valuable company last month. In contrast, the S&P 500 index has risen by 16% in 2024, and the Nasdaq Composite has climbed 20%, reflecting strong overall market performance but also highlighting the volatility specific to tech and AI stocks.
The contrasting performance of Nvidia and its peers underscores the complexities and challenges in the tech sector, particularly as companies navigate significant investments in emerging technologies like AI and cloud computing.