Nvidia Stock (NASDAQ:NVDA)
After data revealed that major hyperscalers are anticipated to increase cloud investment in the near future, Bank of America kept its buy ratings on Nvidia (NASDAQ:NVDA), Broadcom (NASDAQ:AVGO), AMD (NASDAQ:AMD), and many other semiconductor firms on Wednesday.
According to analyst Vivek Arya’s note to clients, big cloud providers like Meta (NASDAQ:META), Amazon (NASDAQ:AMZN), and Google (NASDAQ:GOOGL) are expected to increase cloud investment by $44.3 billion in the fourth quarter. The 7% annual growth rate would be the lowest since 2019, but data for 2023 shows that cloud spending is set to increase to $178 billion for the entire year, growing 6% annually, somewhat higher than the firm’s 5% projection. This is much below the 28% compound annual growth rate and more in line with the 2019 recession, but given that cloud, expenditure can be “volatile in nature,” as Arya put it, there are some areas of strength.
Cloud spending “is historically volatile in nature (spending growth over 2 to 3 years, digestion over 2 to 3 [quarters]), but we look beyond near-term macro, focusing on 25% to 30% historical spending [compound annual growth rate] necessary to support growing cloud activity,” Arya wrote in a note to clients.
Oracle, Nvidia Stock, and other semiconductor stocks
Oracle (NYSE:ORCL), which is increasing its cloud spending, is currently running at a run rate of $2.4 billion per quarter, up 40% sequentially, according to Arya. Given that it is a “key supplier” to the IT behemoth, Nvidia will benefit from this, according to Arya.
After a disappointing 2022, China’s top tech giants, such as Tencent (OTCPK:TCEHY), Baidu (BIDU), and Alibaba (NYSE:BABA), are also prepared to increase their cloud investment in 2023, supporting the chip industry even more.
Arya went into further detail, noting that tech investment is still “essential” for cloud services and that sales of Amazon’s (NASDAQ:AMZN) Web Services, Microsoft’s (NASDAQ:MSFT) Azure, and Google’s Cloud are still expected to increase by 26% and 25% annually in 2023 and 2024, respectively. The requirement for ongoing maintenance for recommender systems with an AI focus means that cloud-related spending is unlikely to decline any time soon.
Arya mentioned Marvell Technology and Credo Technology as potential winners of rising cloud expenditure in addition to holding buy recommendations on Nvidia, Broadcom, and AMD.
Applied Materials and KLA Corp., two manufacturers of semiconductor capital equipment, expect “indirect gains” from rising cloud spending, but they are likely to benefit from the “expanding complexity necessary to produce advanced AI circuits.”
The top semiconductor stocks for 2023, according to financial services company UBS, were AMD and Nvidia.
Nvidia Stock Drops Despite BOFA Anticipating A “Largely Normalization” Of Gaming After The CFO Dinner
Featured Image: Megapixl @ Savconstantine