Nvidia's (NVDA +1.79%) luster seems to have faded. The stock is down roughly 25% below its high set only a few weeks ago. Roughly one-third of Wall Street analysts surveyed by LSEG in August no longer recommend buying Nvidia stock, a big change from July.
Some investors might think it's time to move on to greener pastures. I suspect the opposite is true. Why is Nvidia still a buy after its steep sell-off? Just ask Amazon (AMZN 0.26%), Google parent Alphabet (GOOG 0.37%) (GOOGL 0.38%), Microsoft (MSFT 0.92%), and Meta Platforms (META 0.48%).
NASDAQ: NVDA
Key Data Points
Singing the same song
All four artificial intelligence (AI) leaders sang the same song in their latest quarterly updates. And their music should be sweet to the ears of Nvidia shareholders.
Alphabet reported its second-quarter results on July 23. CFO Ruth Porat noted in the Q2 earnings call that the company's capital expenditures were "driven overwhelmingly by investment in our technical infrastructure with the largest component for servers, followed by data centers." She added that capex in subsequent quarters this year would be at or above the Q1 level of $12 billion.
CEO Sundar Pichai was asked about the high levels of AI infrastructure investment. He replied, "[T]he risk of under-investing is dramatically greater than the risk of over-investing for us here, even in scenarios where it turns out that we are over-investing."
Microsoft announced its fiscal 2024 Q4 results on July 30. CFO Amy Hood said in the company's earnings call, "To meet the growing demand signal for our AI and cloud projects, we will scale our infrastructure investments with FY '25 capital expenditures expected to be higher than FY '24." Around half of that spending will be on servers to support cloud and AI models.
The next day, Meta provided its Q2 update. CFO Susan Li stated in the Q2 call, "[W]e currently expect significant capex growth in 2025 as we invest to support our AI research and our product development efforts."
Amazon followed with its Q2 results on Aug. 1. In the company's earnings call, CFO Brian Olsavsky said, "[W]e expect capital investments to be higher in the second half of the year." He added, "The majority of the spend will be to support the growing need for AWS infrastructure as we continue to see strong demand in both generative AI and our non-generative AI workloads."
Great news for Nvidia
Alphabet, Microsoft, Meta, and Amazon plan to continue spending heavily on AI-related infrastructure. That's great news for Nvidia because it almost certainly means higher sales of its graphics processing units (GPUs).
Sure, these big companies are using their own AI chips to some extent. Google has its Trillium custom AI accelerator. Microsoft has Azure Maia. Meta's custom AI chip is MTIA (which stands for Meta Training and Inference Accelerator). Amazon played up its Trainium and Inferentia chips in its Q2 call.
However, make no mistake about it: These AI giants rely heavily on Nvidia. That isn't going to change anytime soon. It's possible the dependence on Nvidia could increase soon. Nvidia's Blackwell GPU architecture is leaps and bounds better than anything else on the market. Amazon, Alphabet, Microsoft, and Meta are lined up to be among the first to receive the new Blackwell-based chips when they begin shipping.
Nvidia CEO Jensen Huang has great expectations for Blackwell. He predicts that it could be the "most successful product" in the company's history. I suspect he'll be proven right -- with Amazon, Alphabet, Microsoft, and Meta helping make it happen.
What about the reported Blackwell delay?
Some investors could be concerned about the report in The Information of a delay in shipping Blackwell chips due to a design flaw. Nvidia hasn't commented on the rumor other than to confirm that it expects production of the new chips to ramp up in the second half of 2024.
I'm not sure if the report is true, although it could be. In Nvidia's quarterly update in May, CFO Colette Kress said the company was working to make Blackwell available for global partners "later this year." However, in Alphabet's Q2 call, Pichai noted that "the latest Nvidia Blackwell platform will be coming to Google Cloud in early 2025."
But any Blackwell delay should only be a temporary issue for Nvidia. The overall prospects for the company shouldn't change. And if you listen closely to what Amazon, Alphabet, Microsoft, and Meta are saying, those prospects should remain very good.
