Photo from the Sydney Morning Herald.
Nvidia dominates the market, leaving other companies to struggle to compete.
Nvidia, the leading chip maker, hasn't yet released its earnings report for the June quarter, as its fiscal quarter ended on July 28. However, recent earnings reports from the past two weeks have brought positive news for Nvidia. Amazon, Google, Microsoft, and Meta Platforms have all reported substantial increases in capital spending, primarily directed towards data centers and Nvidia's AI systems that support these facilities.
The combined capital spending for Amazon, Google, Microsoft, and Meta Platforms reached $58.5 billion in the June quarter, marking a 64% increase from the previous year. This is the largest combined increase since 2018, according to data from The Wall Street Journal. These companies also indicated that this high level of spending is expected to continue throughout the rest of the year and likely into the next.
Other figures were less impressive. Revenue growth for all four companies slowed compared to the March quarter. However, Meta exceeded Wall Street's expectations and provided a strong forecast, boosting its stock by nearly 5% on Thursday.
However, Microsoft, Google's parent company Alphabet, and Amazon experienced disappointing results in some key business areas. Amazon performed the worst, with its AWS cloud division being the only segment to surpass analysts' revenue expectations for the quarter. Additionally, Amazon's projection of lower-than-expected revenue and operating earnings for the September quarter led to a more than 7% drop in its stock during after-hours trading. Shares of Microsoft and Alphabet also declined after their respective reports.
Apple isn't heavily involved in the current AI spending surge. However, its Thursday results indicate that the company is significantly investing in generative AI. iPhone revenue dropped by 1% year over year, despite the anticipation of a major cycle for the smartphone, as Apple integrates the new AI technology showcased earlier this summer into its products. This rollout will be gradual, as Apple has confirmed that not all features of its Apple Intelligence platform will be available with the new phone launch. The company projected that overall revenue growth for the September quarter would match the 5% growth seen in the June period. Apple's shares saw a slight increase in after-hours trading on Thursday.
Robust AI spending is expected to help Nvidia meet its ambitious targets when it reports its results at the end of the month. Analysts predict nearly $25 billion in data center revenue for the July quarter, which is roughly what this segment was generating annually a year ago. However, the latest results won't alleviate the increasing concern among investors regarding the rapid pace of AI spending by the world's largest tech giants and its eventual payoff.
Amazon CEO Andy Jassy mentioned during the earnings call on Thursday that Amazon is investing significantly in AI. He highlighted the company's long-standing strategy of expanding its cloud computing business to meet demand efficiently without incurring costly excess capacity. "We have a lot of demand right now," he stated during the call.
Not everyone is benefiting from the increased demand. Intel reported disappointing second-quarter results on Thursday, including a 3% drop in revenue for its data center and AI segment, with adjusted per-share earnings falling about 80% below Wall Street's expectations. The company's traditional strength in server computing chips has become a weakness as tech giants prioritize spending on Nvidia's AI systems. As a result, Intel plans to lay off over 15% of its workforce and has suspended the dividend it has paid since at least 1992, according to S&P Global Market Intelligence. The benefits of AI spending are not being widely shared.