Alphabet ‘s eyepopping artificial intelligence spending plans this year may threaten the Google parent’s future earnings but offer added relief to our semiconductor stocks. Shares of Alphabet sank more than 7% on Wednesday, a day after posting a small quarterly revenue miss and slight earnings beat. The headline numbers were overshadowed by worries about the company’s expectation of $75 billion in capital spending in 2025 — an increase of 47% year over year and 27% higher than Wall Street estimates of $59 billion. Management said the investments will go toward increasing AI infrastructure capacity. At the same time, news that Alphabet kicked its capital expenditures into a higher gear served to further ease investor concerns over whether claims of a more efficient, lower-cost AI model from DeepSeek would reduce demand for Nvidia’s chips and Broadcom’s custom silicon. Club stocks Nvidia and Broadcom jumped more than 4% and 6%, respectively, on Wednesday. They were putting together back-to-back gains after Monday’s declines extended last week’s carnage, which started with the emergence of the Chinese startup. Both Nvidia and Broadcom do have a lot more ground to cover to make it back to their pre-DeepSeek levels. Over the past few years, hyperscalers have spent hundreds of billions on AI infrastructure, including servers, data centers, and high-performance semiconductors, to support energy-intensive AI workloads. Nvidia and Broadcom have been at the forefront of the AI revolution. Last week, DeepSeek challenged that dominance. Investors have been trying to gauge whether the startup’s open-source model would shift the AI story away from the dizzying levels of spending on expensive AI technologies. So far, that has not happened . Earnings last week from Club stocks Meta Platforms and Microsoft , and most recently, Alphabet showed that Big Tech is not pulling back on AI-related spending this year. Bank of America highlighted capex commentary from Meta and Microsoft, which indicated “AI spending is on track” as both companies expand their chip purchases to advance their AI endeavors. Regardless of DeepSeek’s “distilled” AI model the race for artificial general intelligence (AGI) and “top-of-the-line frontier models continue,” the BofA analysts said. AI computing power and networking remain “important enablers of the AI golden age,” they added in a note to clients. The analysts maintained their buy ratings on both Nvidia and Broadcom. In a separate note, Citi also maintained its buy rating on Nvidia but cut its price target on the stock to $163 per share from $175. While still bullish, the analysts lowered estimates for calendar year 2025 and 2026 to de-risk China data center exposure. The U.S. government has placed export controls on Nvidia’s fastest artificial intelligence chips to prevent the Chinese government from co-opting the technologies for military use. Last week, Jim Cramer expressed concern that DeepSeek’s efficiencies could create a different narrative around chipmakers Nvidia and Broadcom. Last week, he advised Club members to scale back on Nvidia shares and lock in profits due to uncertainty about whether Nvidia’s clients would need all this capex. He said last Thursday he would have trimmed the Club’s Nvidia position had he not been restricted. This week, Jim wondered whether the robust capex levels announced by Alphabet, Meta, and Microsoft may have tempered these concerns in the near term. To be sure, Club name Amazon , which is set to report its quarter after Thursday’s closing bell, remains an unknown. But three for three so far is not too bad. (Jim Cramer’s Charitable Trust is long GOOGL, NVDA, AVGO. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Sundar Pichai, CEO of Google and Alphabet, attends the inauguration of a new hub in France dedicated to the artificial intelligence sector, at the Google France headquarters in Paris, France, on Feb. 15, 2024.
Gonzalo Fuentes | Reuters
Alphabet‘s eyepopping artificial intelligence spending plans this year may threaten the Google parent’s future earnings but offer added relief to our semiconductor stocks.