The term "AI" was mentioned 80 times on Microsoft's (NASDAQ:MSFT) earnings call last night, and 89 times on Google's (NASDAQ:GOOGL) call, according to Jefferies analysts. This is up sharply from the 39 times and 45 times, respectively, the term was mentioned in the companies' fourth quarter calls. As such, comments on CapEx and AI spending lead the firm to believe that their above-consensus NVIDIA (NASDAQ:NVDA) estimates may "prove conservative."
Microsoft expects sequential CapEx increases over the next 12 months to support cloud growth and AI platform demand, analysts noted. Jun-23Q capital expenditures were $8.9bn, up 24% YoY, exceeding street expectations of $8.3 billion. Microsoft anticipates further acceleration in Sep-23Q due to datacenter capacity and hardware investments, including CPUs, GPUs, and networking equipment. This reacceleration, coupled with continuous CapEx growth throughout the year, could result in ~$40B capex spending in its Jun-24 Fiscal Year, representing a ~25% increase.
Meanwhile, Google plans elevated investment in technical infrastructure through 2H23 and continued growth in 2024, primarily driven by AI opportunities. Jun-23Q CapEx of $6.8B was lower than street expectations of $7.9B, mainly due to reduced office facility spending and delayed data center construction projects. However, Google highlighted significant investments in servers for AI compute, and anticipates higher spending in 2H23 after a slower start.
The analysts reiterated its Buy rating and $500 price target on NVIDIA, with the stock labeled a “Franchise Pick”.