It's a key week for tech stocks as Nvidia gears up for a European conference and Meta prepares to report earnings
Nvidia's stock was rising Monday morning.
After a painful selloff spanning nearly two weeks, the chip sector is now on the mend.
And shares of neocloud companies like CoreWeave (CRWV) and Nebius (NBIS), which deliver cloud services focused on AI workloads, are due for bounces as well.
The chip sector slid across the previous eight sessions as investors questioned the sustainability of artificial-intelligence spending growth. Investors took issue with reports of financial progress at privately held AI companies OpenAI and Anthropic.
Those concerns were further fueled by broader economic trends, including inflation rising faster than anticipated in September, which could lead the Federal Reserve to raise interest rates with more urgency. Higher interest rates would weigh on companies like CoreWeave borrowing large amounts of money to fund the data-center build-out.
Against this more jittery backdrop, Nvidia's conference in Berlin as well as third-quarter earnings results from Meta Platforms (META) this week "are going to be crucial when it comes to restoring confidence that the AI build-out will deliver on the promises that it has made," Richard Windsor, founder of research firm Radio Free Mobile, said.
He also noted "mounting delays" in AI data-center rollouts, as Americans push back against construction in their communities. Operators are also running into issues with permitting and electricity shortages. Microsoft (MSFT) reportedly said Monday that it will no longer pursue a deal for computing power from a data center run by neocloud Nscale Global Holdings (NSCL) in the U.K. due to challenges with power supply, according to The Wall Street Journal.
Despite the fears over new data centers, however, Windsor said in a note to clients that he sees "a silver lining" for companies that are already operating data centers.
"The price that a [data-center] operator can currently charge for capacity is currently at supernormal levels," he said, adding that a five-year return can range from 45% to 85% annually.
While that growth will eventually normalize as more computing power comes online, "this is increasingly looking like it will take longer than expected" given the delays, Windsor said, therefore "creating a substantial benefit to those who have capacity available for sale now."
That would be a boon for cloud service providers, he said, and in his view, xAI and Meta will be the main beneficiaries as he thinks the companies have the most incremental capacity available to sell to customers.
Overall, Windsor said "very little has changed" as far as the underlying drivers of the AI trade, "as all of the companies that have reported in the last month are still sold out at least 12 months in advance." That sets next year up well, he said, though he expects short-term pricing for data centers to start to return to normal levels.
-Britney Nguyen