Nvidia added about US$330-billion (R6-trillion) in stock market value on Wednesday, a record one-day gain for any company on Wall Street, after Microsoft and AMD reignited the AI rally.
Nvidia surged nearly 13% on expectations its top-of-the-line processors will remain in tight demand after Microsoft late on Tuesday reported a massive increase in artificial intelligence spending.
Also lifting Nvidia and other chip makers, AMD ratcheted up its 2024 forecast for its AI chip sales. Microsoft fell 1.1%.
“Microsoft reported some deceleration in its core cloud business, but a huge increase in capex. That represents a transfer of wealth from Microsoft shareholders to Nvidia shareholders,” said Gil Luria, senior software analyst at DA Davidson.
Nvidia’s surge in stock market value shattered Wall Street’s previous record, which Nvidia also set on 22 February with a $277-billion gain.
Nvidia is now valued at $2.88-trillion, making it Wall Street’s third most valuable company, behind Apple and Microsoft. Nvidia’s highest-ever closing stock market value was $3.34-trillion on 18 June, according to LSEG.
The PHLX chip index surged 7% in its biggest one-day gain since 2022. The index sold off for much of July over worries that a rally fuelled by optimism about AI had become overextended. It remains down 11% from its record high close on 10 July.
Microsoft capex
In its report, Microsoft said revenue from its Intelligent Cloud unit — home to the Azure cloud computing platform — jumped 19% to $28.5-billion, but missed analysts’ estimates of $28.7-billion.
“Since Microsoft makes up approximately 20% of demand for Nvidia’s highest-quality AI chips, increasing capex spend at Microsoft is good news for Nvidia’s bottom line,” said Kathleen Brooks, research director at XTB.
“Since Nvidia remains the leading hardware producer for AI technology, increasing capex spend by its biggest customers bodes well for Nvidia’s results.”
Its capital expenditure, including finance leases, surged 78% in the quarter to $19-billion, with Microsoft saying it needs to expand its global network of data centres and overcome capacity constraints to meet AI demand.
The growing cost of the AI race shook investor confidence after Alphabet last week reported a bigger-than-expected rise in capital expenditure to support its generative AI technology.
Technology companies have faced high expectations going into this earnings season. Analysts on average see technology companies in the S&P 500 growing their aggregated earnings by almost 10%, according to LSEG data.
AMD surged more than 4% after it forecast third-quarter revenue above market estimates on Tuesday, banking on demand for its AI chips staying strong. Broadcom, which also sells AI-related chips rallied 12%. — Noel Randewich, with Anna Tong, Aditya Soni, Yuvraj Malik, Kanchana Chakravarty and Zaheer Kachwala, (c) 2024 Reuters
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