Nvidia stands to benefit as Meta spurs an even greater AI spending spree

By Emily Bary

Meta boosted its capital-expense forecast which could prompt other companies to do the same

Meta Platforms Inc. investors' pain looks to be Nvidia Corp.'s gain.

One of the factors weighing heavily on Meta shares (META) Thursday is the company's boost to its capital-spending outlook, which now calls for the Facebook parent company to shell out $35 billion to $40 billion this year. Its prior forecast was for $30 billion to $37 billion.

See also: Meta earnings weigh on Magnificent Seven stocks. Here's why investors shouldn't panic.

Nvidia is among a number of companies expected to benefit from Meta's loftier capital-expense budget, which is meant to support the social media powerhouse's artificial-intelligence buildout.

"As we develop more advanced and compute-intensive recommendation models and scale capacity for our generative AI training and inference needs, we expect that having sufficient infrastructure capacity will be critical to realizing many of these opportunities," Chief Financial Officer Susan Li said.

Shares of Nvidia are bucking the technology sector's selloff Thursday to rise about 2%.

"Our experience is that competition drives [capital expenditures], and the competitive juices around AI seem to be flowing. Therefore, after Meta's AI [capex] uptick, we wouldn't be surprised to see other companies discuss an upward bias to spending on AI infrastructure through 2024 and 2025," Evercore ISI analysts wrote in a note to clients.

They thought Meta's commentary was supportive of Nvidia, Advanced Micro Devices Inc. (AMD), Broadcom Inc. (AVGO) and Marvell Technology Inc. (MRVL)

"We would use recent weakness as a particular buying opportunity for our top parallel processing picks," which are those four names, they added.

Microsoft Corp. (MSFT) reports earnings after Thursday's closing bell, along with Alphabet Inc. (GOOG) (GOOGL), and Wall Street will be monitoring their spending plans.

Read: Why Microsoft's earnings are all about 'surviving and advancing'

Arista Networks Inc. shares (ANET) are up nearly 3%, and the networking company is thought to be another beneficiary of Meta's spending plans. Meta accounted for 21% of Arista's sales last year, Raymond James analyst Simon Leopold noted.

He commented that Meta's spending was also an "opportunity" for Cisco Systems Inc. (CSCO), and he flagged that Meta is one of the largest customers of Ciena Corp. (CIEN) Cisco's stock is down fractionally Thursday, while Ciena's is up fractionally.

-Emily Bary

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04-25-24 1152ET

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