Data-center stocks buoyed an otherwise down chip sector Thursday as shares of Facebook parent Meta Platforms Inc. cratered on torn-in-half profits and a hike in capital spending to fuel Mark Zuckerberg’s metaverse ambitions, prompting one analyst to ask if server chips can only go up now.
As shares of Meta dropped as much as 25% Thursday, shares of Nvidia Corp.
NVDA,
surged as much as 7%, compared with less than 1% declines on the PHLX Semiconductor Index
SOX,
and S&P 500 index
SPX,
Late Wednesday, Meta reported that quarterly profits fell by more than 50% and added that it expects 2022 capital expenditure of $32 billion to $33 billion, compared with a previous range of $30 billion to $34 billion. In 2023, the company said, it expects capital expenditure in the range of $34 billion to $39 billion, “driven by our investments in data centers, servers, and network infrastructure.”
Meta
META,
noted that an “increase in AI capacity is driving substantially all of our capital expenditure growth in 2023.”
Soon after Meta made that announcement, Jefferies analyst Mark Lipacis said in a note that “positive capex commentary from Alphabet
GOOGL,
Microsoft
MSFT,
and Meta” was all a positive for data-center equipment providers Nvidia, Advanced Micro Devices Inc.
AMD,
Broadcom Inc.
AVGO,
and Marvell Technology Inc.
MRVL,
Lipacis has buy ratings on all four stocks.
Shares of AMD rallied as much as 5%, Broadcom shares rose as much as 2% and Marvell shares surged as much as 10% Thursday. Intel Corp.
INTC,
shares were up a little more than 1% at one point ahead of its earnings report, scheduled for after the close Thursday.
Jefferies noted that Meta’s capital expenditure for 2023 alone charts a 12% year-over-year hike at midpoint, compared with the Wall Street consensus of $29 billion, or a 5% year-over-year decline.
“We sense investor caution around Nvidia’s datacenter business this quarter, but we expect all four [equipment providers] to discuss positive datacenter trends this earnings season,” Lipacis said, noting he was a buyer of Nvidia stock “in front of its earnings call.”
From the perspective of the chip industry — which has gone from a two-year global chip shortage to a sudden glut in a matter of months as PC and consumer-electronics demand has dropped sharply, causing chip fabricators to pump the brakes on investments in new capacity — Lipacis questioned whether the glut will ever reach data-center sales, as many have feared.
“The most common comment we hear from investors on Nvidia is ‘the Datacenter Shoe has to Drop,’” Lipacis said, noting that his data shows that the shoe has already dropped and an uptick is on the horizon.
Lipacis explained that data-center sales from Nvidia, AMD and Intel combined declined to $10.5 billion in the second quarter from $12 billion in the fourth quarter of 2021 and that he is modeling another $10.5 billion quarter in the third.
“This looks consistent with the pattern since 2017 of 4-to-5 qtrs above trendline, followed by 2-to-3 qtrs of below trendline ‘digestion,’ i.e., it looks like the datacenter shoe has already dropped,” Lipacis said.
