Data center stocks on Thursday boosted the chip sector’s declines on Thursday Jump ahead now.
Shares of Nvidia Corporation NVDA,
The PHLX Semiconductor Index rose as much as 7%, compared with a decline of less than 1% on the SOX.
and the S&P 500 Index SPX,
Late Wednesday, Meta reported quarterly profit down more than 50%. It expects capital expenditures of $32 billion to $33 billion in 2022, compared to the previous range of $30 billion to $34 billion. The company said it expects capital spending of $34 billion to $39 billion in 2023, “driven by our investments in data centers, servers and network infrastructure.”
“Increasing AI capabilities will significantly drive all of our capital spending growth in 2023,” he noted.
Soon after Meta made the announcement, Jefferies analyst Mark Lipasis wrote in a note, “Positive capex commentary from Alphabet GOOGL,
and Meta” are all from data center equipment providers such as Nvidia, Advanced Micro Devices Inc. AMD,
Broadcom Inc. AVGO,
and Marvell Technology Inc. MRVL,
Lipacis has buy ratings on all four stocks.
Shares of AMD rose as much as 5%, Broadcom shares rose as much as 2% and Marvel shares rose as much as 10% on Thursday. Intel Corporation INTC,
Shares were a little more than 1% higher than that at one point An earnings report is scheduled after Thursday’s close.
Jefferies noted that Meta’s capital spending alone for 2023 shows a 12% year-over-year rise at the midpoint, compared with the Wall Street consensus of $29 billion, or a 5% year-over-year decline.
“We sense investors are cautious around Nvidia’s datacenter business this quarter, but expect all four [equipment providers] to discuss positive datacenter trends this earnings season,” said Lipasis, who noted that he was a buyer of Nvidia stock “ahead of its earnings call.”
From the chip industry’s perspective – PC and consumer-electronics demand has fallen sharply, going from a two-year global chip shortage to a sudden recession in a matter of months, causing chipmakers to put the brakes on new investments. Capacity – Lipasis questioned whether the glut will ever catch up to data center sales, as many fear.
“A common comment we hear from investors at Nvidia is ‘the datacenter shoe needs to drop,'” Lipasis said, adding that his data shows that the shoe has already dropped and a breakthrough is on the horizon.
Lipasis explained that data center sales from Nvidia, AMD and Intel fell from $12 billion in the fourth quarter of 2021 to $10.5 billion in the second quarter, and $10.5 billion in the third quarter.
“This is consistent with a pattern of 4 to 5 QTRs above the trendline since 2017, followed by a 2 to 3 QTR trendline ‘digest,’ meaning the datacenter shoe appears to have already dropped,” Lipasis said.
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