NVIDIA Corporation (NASDAQ:NVDA) shares edged higher in premarket trading on Thursday, recovering some ground after a sharp decline earlier in the week. The stock was at $192.61 as of 6:51 a.m. EDT, up 1.37%, following a 3.55% drop on Wednesday. The modest rebound comes as investors weigh the implications of heavy capital expenditures by major cloud customers against the backdrop of robust AI demand.
Microsoft (NASDAQ:MSFT) surged 9.35% in premarket trading after reporting strong free cash flow, which eased concerns about its spending on AI infrastructure. In contrast, Meta Platforms (NASDAQ:META) fell 9.24% after its earnings release, as its free cash flow dwindled to just $784 million against capital expenditures of $31.08 billion. The divergence highlights a key metric for AI investors: the ability of major buyers to sustain spending without straining their balance sheets.
The broader semiconductor sector has been under pressure. The PHLX Semiconductor Index dropped 5.33% on Wednesday, with Advanced Micro Devices (NASDAQ:AMD) falling 5.51% and Broadcom (NASDAQ:AVGO) down 2.78%. Over five days, AMD has lost 20.41%, while NVIDIA declined 8.98%. The sector-wide downturn suggests a revaluation of AI-related stocks amid rising capital intensity.
Capital expenditures for Microsoft and Meta combined reached $72.08 billion in their most recent quarters, representing 82.6% of their total operating cash flow. Microsoft alone accounted for 96% of the combined free cash flow, underscoring its financial discipline. Microsoft CFO Amy Hood noted that about two-thirds of capital spending went to short-lived assets like CPUs and GPUs, with Azure revenue growing 43% as demand outstripped capacity.
Meta's spending, however, nearly matched its operating cash flow, leaving little room for error. CEO Mark Zuckerberg stated that AI is accelerating the core business, but investors remain skeptical about the timeline for returns. The premarket slide reflected ongoing uncertainty.
NVIDIA continues to demonstrate strong cash generation, with a free-cash-flow margin of 59.5% in its fiscal first quarter. GAAP gross margin stood at 74.9%, and Data Center revenue surged 92% to $75.2 billion. The company forecast second-quarter revenue of $91 billion, with a 2% margin of error, excluding any China data-center compute sales.
Upcoming events will provide further clarity. Amazon (NASDAQ:AMZN) reports earnings on Thursday, with a focus on AWS expansion and infrastructure spending. AMD will release results on August 4, offering insights into accelerator demand and pricing dynamics. Both are critical for NVIDIA's outlook, as cloud customers' purchasing decisions directly influence its revenue.
Risks remain, including the possibility that AI yields may fall short of expectations, leading to reduced purchases. Custom chips and AMD could capture a larger share of future budgets, and China remains excluded from NVIDIA's current revenue projections. For now, AI demand appears steady, but the key question is whether buyers can sustain it without compromising their cash flow. Amazon's report may provide the next clue.
