Nvidia's stock set to climb as Microsoft says the magic words

MW Nvidia's stock set to climb as Microsoft says the magic words

By Emily Bary

Microsoft discussed plans to grow capital spending in the new fiscal year and indicated that its AI spending delivers returns

After a tough recent stretch for Nvidia Corp. shares, they're primed for a sizable boost on Wednesday - along with others in the semiconductor sector.

Nvidia shares $(NVDA)$ are up 6% in premarket trading Wednesday after Microsoft Corp. $(MSFT)$ talked up plans to increase capital spending in the new fiscal year. Microsoft seems to be plowing ahead with its big spending in artificial-intelligence infrastructure because it's seeing returns on investment there.

Read: Microsoft's cloud growth disappointed. Now here's the good news from earnings.

"While we still need to hear from Meta tonight, Microsoft's [capital expenditures] could spell relief for many especially after Google's 'no raise' to capex forecasts recently and the constant concerns around 'AI ROI,'" Melius Research analyst Ben Reitzes wrote. "No one probably needed it more than Nvidia shareholders after the recent sell-off," as Nvidia investors are "counting on Microsoft to be [the company's] biggest customer this year" for graphics processing units.

Reitzes further noted that Microsoft's management called for an acceleration in Azure cloud-computing revenue growth during the second half of the new fiscal year. In his view, it's the company's AI-infrastructure spending that will help get it there, meaning that AI spending is delivering a return on investment when it comes to Azure.

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The spending talk seemed good for Nvidia and other semiconductor companies in light of concerns on Wall Street about the sustainability of investments and whether companies are seeing the necessary payoff from AI to propel further heavy hardware spending down the road.

Nvidia's 6% premarket rally on Wednesday comes after shares closed Tuesday in a bear market, down 23.5% from their record high of $135.58 hit in June.

Other big premarket gainers within the semiconductor sector include shares of Broadcom Inc. $(AVGO)$, up 4.8%, Super Micro Computer Inc. $(SMCI)$, up 4.5%, and Micron Technology Inc. $(MU)$, up 4.3%. All three of those names have been under recent pressure alongside chip stocks more broadly.

The PHLX Semiconductor Index SOX ended Tuesday's session down about 17% from its high hit earlier in July.

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-Emily Bary

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July 31, 2024 07:49 ET (11:49 GMT)

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