It's been a great time to own shares of Alphabet (GOOG +0.08%) (GOOGL +0.14%), Amazon (AMZN +2.02%), and Microsoft (MSFT 0.50%). All three stocks delivered strong gains last year and are up by double-digit percentages so far in 2024.
But it's been a spectacular time to own shares of Nvidia (NVDA +1.95%). The chip stock skyrocketed nearly 240% in 2023 and has vaulted more than 140% higher year to date.
You've probably heard the adage that "success begets success." I think we'll see this proved in a convincing manner, with one company's success translating to success for others. Here's how Nvidia could help Alphabet, Amazon, and Microsoft stocks soar even more.
NASDAQ: NVDA
Key Data Points
Cloud power
To understand how Nvidia could help Alphabet, Amazon, and Microsoft, we first need to know something important about the three companies. Their cloud units are key growth drivers.
In the first quarter of 2024, Alphabet's Google Cloud revenue jumped 28.4% year over year. This business generated nearly 20% of the company's total revenue growth despite making up less than 12% of total revenue.
It was a similar story for Amazon. Revenue for the company's Amazon Web Services (AWS) unit increased 17% year over year in the first quarter, almost 39% of total revenue growth. AWS was an even bigger driver of Amazon's earnings growth.
What about Microsoft? Its cloud business delivered revenue growth in the fiscal second quarter (which ended March 31) of 23% -- roughly 73% of total revenue growth.
How Nvidia is driving migration to the cloud
Anything that drives more customers to the cloud will directly help sales and earnings growth for Alphabet, Amazon, and Microsoft. And over the long term, that should translate to increasing stock prices for each company.
This is where Nvidia comes into the picture. Its technology is helping all three giant cloud service providers to attract more customers and more business from existing customers.
Nvidia chief financial officer Colette Kress explained how the company is helping cloud service providers grow in its first-quarter earnings call. She said that organizations that use Nvidia's GPUs are able to train their large language models (LLMs) more quickly and more cost-effectively than with other chips. They can also deploy those models at the lowest cost with Nvidia's GPUs, Kress said.
Alphabet, Amazon, and Microsoft enjoy exceptional returns on investment when they use Nvidia's AI technology. Kress said that cloud providers can earn $5 in hosting revenue with Nvidia's GPUs over four years for every $1 invested in the company's AI infrastructure.
These big cloud service providers also have ample motivation to adopt new technology introduced by Nvidia. In his company's first-quarter call, Nvidia CEO Jensen Huang emphasized the importance of organizations being able to train AI models quickly.
For example, the company's forthcoming Blackwell GPU architecture enables training that is four times faster than with its wildly popular H100 GPUs. The new platform supports 30 times faster AI inference. It's not surprising that Alphabet, Amazon, and Microsoft are among the early buyers of Blackwell -- even before it ships later this year.
A symbiotic relationship
Haven't Alphabet, Amazon, and Microsoft developed their own AI chips? Could Nvidia's top customers become its rivals over time? Yes and yes.
Huang was asked about this by an analyst in the first-quarter call. He responded by pointing out how Nvidia's technology differs from the custom chips the big cloud service providers offer. He believes that the scope, versatility, and low total cost of ownership of Nvidia's accelerated computing architecture; its pervasiveness across all types of computers, and the company's AI factories stand out as key competitive advantages.
For now, Nvidia and its big cloud customers enjoy a symbiotic relationship. Nvidia's sales grow as it launches new and improved AI technology. Alphabet's, Amazon's, and Microsoft's sales grow as they use Nvidia's latest products to attract customers. It's a win-win proposition for all four companies -- and their investors.
