Microsoft, Alphabet, Amazon, and Meta Platforms Just Announced Fantastic News for Nvidia.

Nvidia (NVDA 1.70%) has been a surefire winner for investors over the past few years. The company, as the global leader in the artificial intelligence (AI) chip market, has seen revenue and profit explode higher throughout the early stages of the AI boom. Investors, eager to benefit from this AI revolution, have piled into the stock, driving it higher — the shares have soared a mind-boggling 1,100% over the past five years.

In recent months, though, investors have worried about this market bellwether’s ability to maintain such momentum. The concern is that any dip in AI spending could damage Nvidia’s growth — and therefore pressure stock performance. Though analysts are optimistic, forecasting a trillion-dollar AI market by 2030, some investors are still on the fence. They’re on the lookout for clear signs of how the AI market will develop in the coming months.

Well, just recently, Microsoft (MSFT 0.64%), Alphabet (GOOG 0.63%) (GOOGL 0.62%), Amazon (AMZN 2.21%), and Meta Platforms (META 2.83%) offered a clue — and it’s fantastic news for Nvidia.

The importance of GPUs

Before we get to that news, though, let’s start with a quick summary of what’s happened so far, from the AI excitement to the concerns. As mentioned, Nvidia has built leadership in the graphics processing unit (GPU) market — these are the chips powering crucial AI tasks, so the designer of such a product remains at the heart of this high-growth market.

Nvidia also took steps to broaden this opportunity beyond the AI chip. The company constructed a complete portfolio of supporting products and services, making it the “go-to” destination for any AI customer. And all of this has helped Nvidia score victory after victory in terms of growth. Revenue has climbed to record levels, and profitability on sales remains strong, as we can see through Nvidia’s gross margin of more than 70%.

The Nvidia AI story and the AI story in general galloped on with great momentum over the past few years, but in recent times, one concern in particular emerged. And that’s the pace of demand and AI spending. Companies have been pouring billions of dollars into AI — and while that’s positive, investors have also worried that trend could lose ground. Any signs of slowing demand may prompt big cloud service providers, for example, to reconsider their plans.

Almost $700 billion in spending

Now, let’s take a look at the news that tech giants delivered in recent weeks during their latest earnings reports. Together, Microsoft, Alphabet, Amazon, and Meta Platforms aim to spend nearly $700 billion on AI this year.

Amazon made headlines when it announced potential capital expenditures of as much as $200 billion across the company, but with a focus on its cloud business. Alphabet forecast capex as high as $185 billion, while Meta pledged to spend as much as $135 billion. Finally, Microsoft’s capex of more than $37 billion in the recent quarter implies a spend of $148 billion over 12 months if the company continues at that rate. Importantly, cloud providers Amazon, Alphabet, and Microsoft all spoke of sustained high demand for AI products and services and the need to invest in order to meet this demand. Amazon even said that it’s been monetizing capacity as soon as that capacity becomes available.

All of this is fantastic news for Nvidia for a couple of reasons. First, one of the key items needed in an AI infrastructure buildout is the GPU, so it’s clear that this new wave of spending will benefit the chip leader. Second, this fresh look at demand, delivered by companies during their earnings reports, shows that companies aren’t just building out to serve potential demand. Strong demand exists right now and is set to continue, and these players are rushing to keep up with it.

“Our customer demand continues to exceed our supply,” Microsoft finance chief Amy Hood said during the company’s earnings call, referring to GPUs and central processing units (CPUs).

This picture supports the idea of continued and progressive investment in AI infrastructure, which should fuel Nvidia’s earnings growth in the quarters to come. And that’s excellent news for the company and its shareholders.