Thanks to the astonishing financial outlook laid out on Wednesday by the chip company
Nvidia,
investors on Thursday were zealously snapping up cloud and artificial intelligence plays.
Nvidia surged 24% on Thursday, pushing its valuation close to the $1 trillion range. Among the other big winners were
Arista Networks
(ANET), which makes communications hardware used in cloud computing and
Advanced Micro Devices
(AMD), a chip company making a big push into AI-related processors, both up 11%.
Adobe
(ADBE), which is adding generative AI tools to its creative software suite, was up 7%,
Taiwan Semiconductor
(TSM), which actually makes AI-targeted chips for Nvidia, added 12%.
Nvidia said it is seeing increased order activity from cloud companies, which would imply strong business for those companies, and in fact,
Alphabet
(GOOGL) rose 2%,
Microsoft
(MSFT) was up 4%, and
Oracle
(ORCL) spiked 6%.
But
Amazon
(AMZN), parent of Amazon Web Services, the single largest provider of cloud computing services, is down 1.5%. Kind of a head scratcher.
So here’s what is going on.
Rather than trade off the Nvidia earnings, the stock instead seems to be tied to the disappointing guidance laid out late Wednesday by
Snowflake
(SNOW).
As I noted in a piece analyzing the issues with Snowflake’s outlook, CFO Mike Scarpelli said on the company’s earnings conference call that some large customers have taken a fresh look at their data-retention policies and decided to delete stale and less-valuable data.
“This lowers their storage bill and reduces compute cost,” he said. And though Scarpelli didn’t say it, Amazon provides these companies with storage and computing services
Redburn analyst Alex Haissl contends there are two reasons Amazon was left out of Thursday’s massive rally in tech shares generally and cloud and artificial intelligence stocks in particular.
“Firstly, the market wants to draw a negative inference from the Snowflake warning, given that most of their customers operate on AWS,” he writes in response to a query from Barron’s “Consequently, any reduction in Snowflake usage results in decreased AWS utilization.”
And secondly, he says, “there is a perception that Microsoft, Google and Oracle derive greater advantages from Nvidia, as AWS gradually transitions to using their own AI chips,” known as Tranium and Inferentia. But Haissl adds that he disagrees, and asserts that the market concerns about both issues are overdone.
Jordan Klein, a managing director at Baird who writes a daily morning commentary on the outlook for technology stocks, made similar points in response to a query from Barron’s. He thinks that negative Snowflake comments on consumption trends, which suggested that April week-on-week growth was zero, is viewed as a negative sign for companies with consumption based business models, like Snowflake.
Klein also notes that on the Nvidia conference call on Wednesday, CEO Jensun Huang talked about the company’s partnerships with Microsoft Azure, Google Cloud and Oracle Cloud, without saying as much about AWS.
The bottom line is that on a day that cloud and AI stocks went nuts, investors left out the biggest cloud player of them all.
Write to Eric J. Savitz at eric.savitz@barrons.com
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