Data center stocks boosted the otherwise low-chip sector on Thursday, as did shares in Facebook parent company Meta Platforms Inc. halved profits and rising capital spending to fuel Mark Zuckerberg’s metaverse ambitions prompted one analyst to question whether server chips can only go up now.
As Meta shares fell as much as 25% on Thursday, Nvidia Corp.
NVDA,
The PHLX Semiconductor Index rose as much as 7%, compared with a less than 1% decline
SOX
and the S&P 500 index
SPX,
Tuesday, Meta reported a more than 50% drop in quarterly profit and added that it expects capital spending to be $32 billion to $33 billion in 2022, compared with $30 billion to $34 billion previously. In 2023, the company said it expects capital expenditures of $34 billion to $39 billion “due to our investments in data centers, servers and network infrastructure.”
Purpose
PURPOSE,
noted that “increasing AI capability is driving all of our capital spending growth in 2023.”
Shortly after the Meta announcement, Jefferies analyst Mark Lipacis noted, “A positive capex comment from Alphabet.
GOOGLE,
Microsoft
MSFT,
and Meta” were positive for data center hardware providers Nvidia, Advanced Micro Devices Inc.
AMD,
Broadcom Inc.
AVGO,
and Marvell Technology Inc.
MRVL,
Lipacis has a buy rating on all four stocks.
AMD shares rose as much as 5%, Broadcom shares rose as much as 2% and Marvell shares rose as much as 10% on Thursday. Intel Corp.
INTC,
shares were up a little more than 1% at one point Earnings report scheduled after the close on Thursday.
Jefferies noted that Meta’s capital spending for 2023 alone shows 12% annual growth at the midpoint, compared to the Wall Street consensus of $29 billion, or a 5% annual decline.
“We sense investor caution regarding Nvidia’s data center business this quarter, but expect all four [equipment providers] To discuss positive data center trends this earnings season,” Lipacis said, noting that he was a buyer of Nvidia stock “ahead of the earnings call.”
In terms of the chip industry – a two-year global chip shortage has turned into a sudden glut in a matter of months, as PC and consumer-electronics demand plummeted, causing chipmakers to put the brakes on new investment. capacity – Lipacis questioned whether capacity will ever reach data center sales, as many fear.
“The most common comment we hear from investors at Nvidia is, ‘The datacenter shoe must drop,'” Lipacis said, noting that his data shows the shoe has already dropped and an upside is on the horizon.
Lipacis 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 modeled another $10.5 billion in the third quarter.
“This seems to fit a pattern of 4-5 qt above the trendline since 2017, followed by a 2-3 qt below the trendline ‘digest’, meaning the data center shoe appears to have already dropped,” Lipacis said.
