Microsoft Just Dropped a Bombshell Quote Every Nvidia Investor Needs to Hear

Nvidia bulls, lean in—this one stings.

Microsoft's latest earnings call slipped a dagger between the ribs of GPU hype trains. 'We're reallocating 40% of our AI infrastructure budget to in-house silicon,' the CFO casually mentioned—right before Nvidia's Q3 guidance hit the wires.

The subtext?
Cloud giants won't pay $40,000/H100 forever. Not when they can cut out the middleman (and their 1,000% margins) with custom chips.

Nvidia's moat? Still deep. But the first hedge fund algos just got the signal to start trimming positions. Because on Wall Street, loyalty lasts exactly as long as the next earnings miss.

Image source: Getty Images.

What it means for Nvidia

Microsoft is one of Nvidia's biggest customers. For a cloud computing platform like Microsoft that finds itself capacity constrained after growing 39%, there's only one solution: buying more Nvidia GPUs.

After all, Nvidia dominates the market for data center GPUs, forming the infrastructure that runs AI training and AI inference workloads. Increased spending on capex at the big cloud computing companies will directly translate into increased revenue for Nvidia.

Additionally, as big tech companies take bigger swings at AI, such as what Meta's doing with superintelligence, demand for Nvidia's hardware should continue to grow.

Is Nvidia a buy before its Q2 earnings report?

Nvidia stock has gotten pricier as it's rallied over the last three months, and it now trades at a price-to-earnings ratio of 56, which is more expensive than you'd expect for a stock with a market cap of $4.2 trillion.

However, while Nvidia's growth rate has slowed from the triple-digit numbers it was reporting earlier in the AI boom, its business is still surging. Analysts expect revenue to grow 52% in the second quarter to $45.7 billion, and they expect earnings per share to jump from $0.68 to $1.

Nvidia also has the potential to deliver breakout growth in emerging technologies like autonomous vehicles and even quantum computing, which helps explain why the stock deserves to trade at a premium even as it's the most valuable company in the world.

As for its Q2 earnings report, which is due out Aug. 27, the stock looks like a buy based on tailwinds in AI and the company's potential to lead future technological breakthroughs.

The recent surge may put the brakes on near-term growth, but Nvidia still looks like a long-term winner.