Big Tech's AI Race Has One Clear Winner --- All the big firms are spending heavily on Nvidia chips

"It's Nvidia's market. Everyone else just lives in it -- though not nearly as well.

The superstar chip maker hasn't participated in the latest round of earnings reports for the June quarter -- its announcement will come later, as its fiscal quarter just ended on July 28. 

But the most dominant news out of those reports over the last two weeks has been great news for Nvidia, as Amazon.com, Google, Microsoft and Meta Platforms have all reported significant jumps in capital spending that is mostly going toward data centers and Nvidia's artificial-intelligence systems which power those facilities.

It is a lot of money. Combined capital spending for those four companies totaled $58.5 billion for the June quarter -- up 64% year over year and the biggest jump that group has seen on a combined basis since 2018, according to data compiled by The Wall Street Journal. The four also projected the elevated spending would continue into the rest of the year and likely into the next.

Other numbers weren't quite as impressive. All four companies saw revenue growth decelerate from the March quarter. Meta still managed to solidly beat Wall Street's targets and added a strong forecast to the mix, which helped the stock gain nearly 5% Thursday.

But Microsoft, Google-parent Alphabet and Amazon saw results in some key business units fall short. Amazon fared the worst in that regard, with its AWS cloud business the only segment to beat analysts' revenue targets for the quarter. The company also projected disappointing revenue and operating earnings for the September quarter in its latest report Thursday, sending the stock down nearly 9% in Friday trading. Microsoft and Alphabet shares also fell following their respective reports.

Apple isn't running in quite the same AI spending race. But its results Thursday showed how the company also has a lot riding on its own adoption of generative AI. iPhone revenue slipped 1% year over year ahead of what is expected to be a big cycle for the pioneering smartphone, as Apple brings the new AI technology it previewed earlier this summer to its products. But that rollout will be slow, as the company has confirmed that not all the capabilities of its Apple Intelligence platform will be available when its new phones launch. The company said overall revenue growth for the September quarter would be about the same as the 5% growth reported for the June period. Apple's shares edged up slightly in Friday trading.

Strong AI spending should help Nvidia make its own ambitious numbers when it reports results at the end of the month. Analysts are expecting nearly $25 billion in data-center revenue for the July quarter -- about what that business was generating annually a year ago. But the latest results won't quell the growing concern investors have with the pace of AI spending among the world's largest tech giants -- and how it will eventually pay off.

Amazon Chief Executive Andy Jassy said on the company's earnings call Thursday that Amazon is investing "a significant amount" in AI. But he also noted the company's long history of building up its cloud-computing business to meet demand without ending up with costly excess capacity. "We have a lot of demand right now," he said on the call.

That demand isn't helping everyone. Intel posted disappointing second-quarter results Thursday that included a 3% drop in revenue for its data center and AI segment, with adjusted per-share earnings about 80% below Wall Street's projections. The company's historic strength in traditional server computing chips has become a weak point, as tech giants focus their spending on Nvidia's AI systems. Intel now plans to lay off more than 15% of its workforce, and the company said Thursday it is suspending the dividend it has paid since at least 1992, according to data from S&P Global Market Intelligence. AI's wealth is far from being spread to all." [1]

1. EXCHANGE --- Heard on the Street: Big Tech's AI Race Has One Clear Winner --- All the big firms are spending heavily on Nvidia chips. Gallagher, Dan.  Wall Street Journal, Eastern edition; New York, N.Y.. 03 Aug 2024: B.12.