Increased AI Mentions in Microsoft and Google Earnings Calls
Microsoft's (NASDAQ: MSFT) recent earnings call cited "AI" an impressive 80 times, while Google (NASDAQ: GOOGL) mentioned it 89 times, as per the latest analysis by Jefferies. This marks a significant increase from their respective fourth quarter calls, where "AI" was mentioned 39 and 45 times. Consequently, Jefferies believes that the heightened focus on CapEx and AI expenditure could cause its above-consensus estimates for NVIDIA (NASDAQ: NVDA) to seem cautious in retrospect.
Microsoft's Cloud and AI Investments Surge
Microsoft anticipates steady CapEx growth over the following year to bolster cloud expansion and AI platform demand. Their capital expenditures for Jun-23Q reached $8.9 billion, a 24% YoY surge that eclipsed market expectations of $8.3 billion. Microsoft's projected acceleration in Sep-23Q - due to data center capacity and hardware investment, such as CPUs, GPUs, and networking equipment - suggests an even stronger CapEx growth trajectory. If this trend continues, Microsoft's capex expenditure might hit ~$40 billion in the Jun-24 Fiscal Year, a ~25% increase.
Google's Increased Expenditure on AI Infrastructure
On the other hand, Google is planning to augment its investment in technical infrastructure through 2H23, with growth continuing into 2024. The impetus for this comes primarily from potential AI opportunities. While Google's Jun-23Q CapEx of $6.8 billion fell short of the $7.9 billion market prediction, this was due largely to decreased spending on office facilities and postponed data center construction projects. Notwithstanding, Google emphasized significant investments in AI server technology and predicts heightened spending in 2H23 following a slower start.
Jefferies Maintains "Buy" Rating for NVIDIA
Jefferies remains bullish on NVIDIA, maintaining its "Buy" rating and $500 price target while labeling the stock as a “Franchise Pick.” The strong emphasis by tech leaders Microsoft and Google on AI-driven growth and associated capital expenditure offers the potential for NVIDIA to surpass market expectations.