Nvidia’s (NVDA) “relief rally” on Wednesday was short-lived. The stock hit its lowest level since May, falling nearly 7% on Friday and erasing its gains from earlier in the week amid a broad rally in the technology sector.
Nasdaq (^IXIC) entered correction territory, driven not only by signs of a weak economy but also by fears that a few big tech players are spending heavily on AI.
But that last point – the commitment to invest more in AI – should be considered a “motivation” for Nvidia and AI chip makers.
Wall Street experts were quick to tell Yahoo Finance this week that the AI business is far from over, and the recent pullback should be seen as an opportunity to stockpile shares. Although big Tech companies are struggling to show the results of their AI work, they are still willing to use the shifts for the long term.
“It’s a good buying opportunity because of the broader market outlook,” Winthrop Capital Management’s Luke Stone told me after Nvidia AMD’s ( AMD ) strong earnings forecast.
“You see the difference between the chip makers and their customers, who have to invest more in the product and really struggle,” Winthrop added.
This past quarter alone, Meta ( META ), Alphabet ( GOOG , GOOGL ), and Microsoft ( MSFT ) posted more than $40 billion in revenue. Amazon (AMZN) was $30 billion in revenue during the first six months of the year and plans to spend even more in the second half. All told, most of that money goes to AI.
It’s not what the market wanted to hear. Shares of Amazon and Microsoft closed the week lower, matching the drop in Alphabet shares last week, as investors made it clear that the AI business has become a show-me story.
But what’s worrying for hyperscalers is good news for Nvidia and its peers.
“We have continued to see them [capital expenditures] guides step up with the material and that’s what really matters,” Bernstein managing director Stacy Rasgon told me.. “People are worried about the performance but it looks like that money, at least for now, is still going.”
And that aims to boost Nvidia’s top line, as Meta, Amazon, Google, and Microsoft account for more than 40% of the chipmaker’s revenue.
Angelo Zino of CFRA explained to me: “The fear that the revenue will not be there in 12 months or more is starting to subside. “We think Nvidia will deliver good results, and that will be a factor in the region.”
In a note to clients earlier this week, Morgan Stanley’s Joseph Moore argued that the sale of Nvidia provides a “good entry point” and restored the chip maker to his “Top Pick”.
“Our view is that the market is taking an empty glass view of some hyperscale concepts, where there is a clear desire of customers to continue to make tools to develop multi-scale AI,” Moore wrote.
Synovus Trust portfolio manager Dan Morgan compared the opportunity to invest in Nvidia and other AI stocks to investors who thrived during the gold rush. “Would you rather be a gold miner or would you rather be a gold mining equipment salesman?” he said.
Nvidia closed the week off 5% and is down nearly 26% from its record closing high. Despite the pullback, shares are still up 116% year to date.
Sean Smith I am an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Tips on deals, mergers, activist positions, or anything else? Email seanasmith@yahooinc.com.
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