You don't have to read tea leaves to try to learn about companies' prospects. However, it's not a bad idea to read the transcripts from other companies that operate in the same industry. Sometimes, executives from a competitor, customer, or vendor share things in quarterly updates that provide insight you can't get anywhere else.
Dell Technologies (DELL +16.66%) just might have done just that last week. On Feb. 29, the technology company held its quarterly conference call to discuss its fourth-quarter results. During that call, Dell gave Nvidia (NVDA 1.86%) and Advanced Micro Computers (AMD +4.09%) investors something to cheer. And it perhaps gave Amazon (AMZN 0.70%), Microsoft (MSFT 0.06%), and Google parent Alphabet (GOOG 1.04%) (GOOGL 1.19%) investors something to fear.
NYSE: DELL
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Something to cheer
Like many companies, Dell is enjoying strong tailwinds from the adoption of artificial intelligence (AI). COO Jeff Clark said in the Q4 conference call that his company saw robust demand for its AI-optimized servers. Clark added that Dell's flagship PowerEdge XE9680 is "the fastest-ramping solution in company history." Overall, orders in Q4 for the company's AI-optimized servers soared by nearly 40% from the previous quarter.
Why is this something for Nvidia and AMD investors to cheer? Dell's AI-optimized servers use graphics processing units (GPUs) from both Nvidia and AMD. Clark said that the high demand "was spread across the H100, H800, the H200, and the MI300X." The first three of those GPUs are made by Nvidia, while the last one is made by AMD.
Clark noted that "demand continues to outpace GPU supply." He stated that there's "strong interest" from customers in servers with next-generation AI GPUs such as Nvidia's H200 and AMD's MI300X. Importantly, Clark observed that "most customers are still in the early stages of their AI journey."
All of the comments from Dell's COO should bring smiles to Nvidia and AMD investors. The picture painted by Clark is one of tremendous current demand for the two chipmaker's GPUs that doesn't appear to be waning.
Few will find any of what Clark said surprising, of course. However, it's good to hear confirmation from an industry leader who isn't associated with Nvidia or AMD. And his comments seem to help justify the massive gains both stocks have delivered so far this year.
NASDAQ: AMD
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Something to fear?
But Amazon, Microsoft, and Alphabet investors might not like some of Clark's other statements. He seemed to take a deliberate dig at predictions that the cloud is where the future of AI lies.
Clark said, "We believe the long-term AI action is on-prem [on-premises], where customers can keep their data and intellectual property safe and secure." He pointed out that around 83% of all data is currently stored on-premises.
According to Clark's view, more data will be generated at the edge of networks outside of data centers going forward than inside data centers. Because of this, he argued that "AI will ultimately get deployed next to where the data is created, driven by latency."
Amazon CEO Andy Jassy said in his company's Q3 call in October 2023: "[C]ustomers want to bring the [AI] models to their data, not the other way around." That might sound as if he and Clark are on the same page. However, Jassy also stated in Amazon's 2023 Q1 call that he believes that the heavy concentration of IT spending that's currently on-premises will move to the cloud, with Amazon Web Services (AWS) benefiting from this transition.
Microsoft CEO Satya Nadella proclaimed in January 2023, "The age of AI is upon us and Microsoft is powering it." He made this statement in the context of discussing Microsoft's cloud platform, boasting that his company had "the most powerful AI supercomputing infrastructure in the cloud."
What does Alphabet think? CEO Sundar Pichai said in his company's latest quarterly update that AI is "driving interest and early adoption" of Google Cloud. This AI boom has been the primary tailwind driving Alphabet stock higher over the last 12 months.
NASDAQ: GOOGL
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But if Clark is right that the future of AI is on-premises and not in the cloud, the growth prospects for Amazon, Microsoft, and Google perhaps won't be as strong as their CEOs and investors anticipate. In Dell's vision of what's on the way, local devices could be more important than cloud platforms.
Cheers all around
Should Amazon, Microsoft, and Alphabet investors be worried? I don't think so. The underlying reasons why organizations continue to move their apps and data to the cloud won't go away. Cloud platforms help lower total costs and provide more flexibility and scalability than on-premises data centers.
That said, I do think that Clark is probably right that the use of AI on local devices will increase. He's also absolutely correct that customers are only in the early innings of AI deployment.
There's good news for all of these companies, in my view. Nvidia and AMD should win as the demand for GPUs soars. Dell should win as the demand for AI-optimized servers grows. Amazon, Microsoft, and Alphabet should win as more customers build AI apps on the cloud. Everyone has something to cheer about.
