Tech Stocks Take a Hit as AI Spending Concerns Mount
The semiconductor sector took a significant blow on Thursday, with Nvidia leading the decline. Shares of the graphics processing unit (GPU) giant plummeted nearly 5% amid concerns of a slowdown in artificial intelligence (AI) spending and potential delivery delays of its AI chips.
Broad-Based Selloff
The PHLX semiconductor index (^SOX) fell 4%, outpacing the broader market’s decline. Nvidia’s rivals, including Advanced Micro Devices (AMD), Intel, Qualcomm (QCOM), and Broadcom (AVGO), also felt the pinch, with declines ranging from 2.9% to 3.9%. Arm (ARM) suffered the largest loss, tumbling 8.5%.
Microsoft’s Earnings Report Raises Red Flags
Microsoft’s (MSFT) earnings report on Wednesday hinted at delayed shipments of GPUs from “third parties,” which weighed on its guidance for its AI cloud business in the current quarter. As a major user of Nvidia’s GPUs in data centers, Microsoft’s struggles to meet demand may indicate that it’s not receiving the necessary chips on time.
Fears of Slowing AI Spending
Persistent concerns about a slowdown in spending among AI hyperscalers, such as Google and Meta, also contributed to Nvidia’s decline. Microsoft’s CFO Amy Hood suggested that growth in AI-fueled spending will eventually ease, although the timeline remains unclear.
Google and Alphabet’s Cautious Approach
Google parent Alphabet (GOOG) announced that its capital expenditures would remain flat in the fourth quarter, citing the need to balance investments in AI and other growth areas with cost discipline. The company expects spending to increase in 2025, but at a slower pace than previously anticipated.
AMD’s Disappointing Outlook
Advanced Micro Devices’ quarterly earnings results added to investor concerns, as the company’s fourth-quarter sales outlook fell short of expectations. The chipmaker’s revenue guidance of $7.5 billion for the current quarter was lower than the $7.55 billion forecast by analysts.
Big Tech’s AI Bills Continue to Climb
Despite the concerns, Big Tech companies’ AI expenses continue to rise. Microsoft’s capital expenditures nearly doubled to $20 billion in its most recent quarterly report, while Meta’s expenses rose 36% to $9.2 billion over the same period. Google’s capital expenditures jumped 63% to $13 billion, sparking separate investor concerns about the impact on megacap tech stocks.
Nvidia’s Upcoming Earnings Report
Nvidia is set to report its third-quarter earnings on November 20. Analysts expect adjusted earnings per share to grow 84% to $0.74 and revenue to climb 83% to $33 billion.
Leave a Reply