March 2, 2024

How can Tech Giants spend less and sell so many GPUs at Nvidia?

  • Big tech companies are trying to keep on top of spending plans.
  • Nvidia is selling billions of dollars of GPUs for AI data centers.
  • Both cannot be happening at the same time.

2023 was supposed to be the year of austerity for Big Tech. The AI ​​arms race is changing that.

Amazon, Google, Meta and Microsoft have cut thousands of jobs in the past year, while trimming capital spending plans to please Wall Street. It worked. Their shares soared.

Enter Nvidia and the AI ​​generation boom. It sells GPUs, special chips used to train these new AI models. For the coming quarter, the company forecast $11 billion in revenue, up 64% from a year earlier. Most of that growth is coming from the demand for AI, especially in the data center space.

The largest operators of data centers are Amazon, Google, Meta and Microsoft. They are also big AI model developers and big customers of Nvidia. So how can these tech giants keep a lid on spending, and Nvidia’s sales are on the rise?

For a while, some analysts and investors tried to believe that both were happening at the same time. It’s nice to have your cake and eat it too. Logic and mathematics prevail now, however. And Big Tech is expected to go back to splurging again.

“Capex increases across the board are probably the worst-kept secret on Wall Street,” Mark Shmulik, a tech analyst at Bernstein Research, wrote in a note to investors Tuesday that previews some of the upcoming Big Tech earnings season . “All those Nvidia GPUs have to be going somewhere.”

Here’s what Morgan Stanley analysts think will happen to Big Tech’s spending habits:

  • Google capex will rise 4% to about $33 billion in 2023 and 8% to about $35 billion in 2024. That will be driven by a 31% jump in technical infrastructure spending this year, and a 15% increase next year.
  • Analysts are predicting Meta capex of $33 billion this year, at the high end of the company’s guidance. Next year, capex will rise about 9% to $36 billion, driven by growth in infrastructure spending to support AI recommendation algorithms and AI generation.
  • Amazon’s AWS technical infrastructure capex will climb about 8% this year to $37 billion. It will go up 15% in 2024 to reach $42 billion.

“We see more potential upside risk to ’24 capex estimates than ’23,” Morgan Stanley analysts wrote in a recent note. “In many ways, given the opportunity these AI tools create (and the data/distribution advantages these big companies have) we hope they spend as much as they can … provided they can the Deliver and communicate incremental ROIC to investors.”

ROIC stands for return on invested capital. Another possible translation would be: These companies better make good money on all this AI stuff.

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