The first quarter of 2025 has reaffirmed what many investors suspected: the AI revolution is not slowing down. Recent earnings reports from Microsoft (NASDAQ:MSFT) and Meta Platforms (NASDAQ:META) have exceeded market expectations due to AI-related demand being much higher than many would have expected in the current environment.
Nvidia (NASDAQ:NVDA) is well-positioned to gain as long as demand continues to rise. But at the same time, I wouldn’t get too carried away. Super Micro Computer (NASDAQ:SMCI) reported dismal preliminary earnings recently, and that too has some implications for Nvidia.
This optimism is likely to taper off if macro uncertainty continues, but it is still a solid buy signal. The increase in CapEx is something that will definitely help Nvidia continue its streak of beating earnings estimates with stellar figures.
Let’s look at the good news for Nvidia first. Microsoft reported a 33% year-over-year surge in Azure revenue, with nearly half of that growth coming from AI services. The company also confirmed that it plans to spend $80 billion on AI infrastructure in fiscal 2025.
Some analysts weren’t sure about Microsoft doing so, since the company earlier canceled data center leases, and many took that as a sign that Microsoft was giving up on spending big on AI. The recent earnings report says otherwise, Meanwhile, Meta raised its AI CapEx to the midpoint of $68 billion. It’s likely a good amount of that is going to flow into chipmakers.
These tech giants are among Nvidia’s largest customers, and while many of them have started to design their own chips, they’re not yet able to wean off Nvidia meaningfully. Semiconductor technology is moving too fast for them to keep up, and considering AI demand remains hot and the cloud segments have solid margins, these companies are still happy to pay a massive markup for Nvidia’s chips.
This is mainly why I think it’s a good idea to temper your optimism about Nvidia. Super Micro’s preliminary Q3 earnings fell short of both its own guidance and Wall Street’s expectations. Revenue came in at $4.5-4.6 billion vs. guidance of $5-6 billion. Non-GAAP EPS dropped to $0.29 to $0.31, which is down over 50% from previous forecasts.
The company blamed “delayed customer platform decisions,” meaning some large clients postponed orders, pushing sales into the next quarter. The miss sent Super Micro’s stock tumbling.
Super Micro is a major Nvidia partner and integrates Nvidia’s GPUs into its high-performance AI servers. A slowdown in server orders could signal that end customers are becoming more cautious and are likely reassessing the ROI of massive AI investments or waiting for new hardware cycles.
Regardless, the wording from Super Micro implies that demand is simply delayed.
Nvidia remains the AI kingpin, and there’s no doubt about it. Considering hyperscalers are expected to ramp up orders this year and Nvidia’s Blackwell chips are sold out for the year, it is unlikely to underperform.
NVDA stock currently trades at less than 25 times forward earnings. The near term won’t be pleasant if Nvidia doesn’t impress analysts on earnings day or if it loses more China market share, but it’s hard to see a NVDA investment underperforming in the long run from these levels.
The consensus price target of $164.96 implies 45.2% upside.
