Tech earnings give no signs of bubble, yet
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Nvidia closed the door on the Magnificent 7's earnings season with a whimper. But the results in total left investors overly bullish.
Why it matters: Nvidia's earnings results may not have been good enough for its own shareholders. But billions of dollars in AI spending commitments will be enough to sustain the broader tech rally, strategists say.
What they're saying: "S&P 500 companies are dramatically increasing their capital expenditures on AI infrastructure," writes John Belton, portfolio manager at Gabelli Funds. "This is a sustained investment trend, not a short-lived bubble."
- Nvidia's results speak to an accelerating AI growth story across the tech world.
By the numbers: Microsoft, Meta, Amazon and Alphabet make up 40% of Nvidia's revenue, and those four make up 15% of the S&P 500.
- The four companies have committed to spend over $360 billion on AI capital expenditure this year, according to their latest earnings results.
- That kind of commitment will benefit Nvidia, as no formidable competitor has created equally powerful AI chips (yet).
Yes, but: It's not all bulls on the tech trade.
- Dan Niles, tech investor and founder of Niles Investment Management, cautioned in a post on X that investors should be "more broadly invested" in the near term instead of simply buying into the Magnificent 7.
- Nvidia's sales growth is slowing.
- This quarter was also the lowest upside surprise for Nvidia's sales since the launch of ChatGPT.
Situational awareness: Nvidia's results came after a scathing MIT report indicated 95% of companies see no return from their AI investments.
- Paul Meeks, head of technology research at Freedom Capital Markets, was "shaken" by the report, and added that market concentration bothers around AI him.
- Bulls called the MIT report a sign of early adoption issues. Bears called it Wall Street's biggest fear.
What we're watching: Investors are bullish on the next 12 to 18 months for AI. The longer term picture is cloudier.
- "Yes, it might be a bubble, but in my view, it's a bubble that's nowhere near bursting," Belton noted.
