Dell just gave Nvidia and AMD investors something to cheer – and Amazon, Microsoft and Google investors something to perhaps fear

By | March 5, 2024

You don’t have to read tea leaves to learn about companies’ prospects. However, it’s not a bad idea to read the transcripts of other companies operating in the same industry. Sometimes executives from a competitor, customer or supplier share things in quarterly updates that provide insights you can’t get anywhere else.

Dell Technologies (NYSE: DELL) I might have done that last week too. On February 29, the technology company held its quarterly conference call to discuss fourth-quarter results. During that phone call, Dell Nvidia (NASDAQ: NVDA) And Advanced microcomputers (NASDAQ: AMD) investors something to cheer about. And maybe it mattered Amazon (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT)and Google parent Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) investors something to fear.

Something to cheer up

Like many companies, Dell is benefiting from the strong tailwinds of artificial intelligence (AI) adoption. COO Jeff Clark said during the fourth quarter conference call that his company saw strong demand for its AI-optimized servers. Clark added that Dell’s flagship PowerEdge XE9680 is “the fastest growing solution in company history.” Overall, fourth-quarter orders for the company’s AI-optimized servers rose nearly 40% from the previous quarter.

Why is this something for Nvidia and AMD investors to cheer? Dell’s AI-optimized servers use graphics processing units (GPUs) from both Nvidia and AMD. Clark said the high demand was “spread across the H100, H800, the H200 and the MI300X.” The first three of those GPUs were made by Nvidia, while the last was made by AMD.

Clark noted that “demand continues to outpace GPU supply.” He stated that there is “strong interest” from customers in servers with next-generation AI GPUs such as Nvidia’s H200 and AMD’s MI300X. Importantly, Clark noted that “most customers are still in the early stages of their AI journey.”

Any comments from Dell’s COO should bring a smile to Nvidia and AMD investors. The picture painted by Clark is one of enormous current demand for the two chip makers’ GPUs, which shows no sign of abating.

Few, of course, will find anything Clark said surprising. However, it’s good to hear confirmation from an industry leader not associated with Nvidia or AMD. And his comments appear to help justify the huge gains both stocks have made so far this year.

Something to be afraid of?

But investors at Amazon, Microsoft and Alphabet may not like some of Clark’s other statements. He seemed to be deliberately digging into predictions that the future of AI lies in the cloud.

Clark said: “We believe the long-term AI action is on-site [on-premises]where customers can keep their data and intellectual property secure.” He pointed out that approximately 83% of all data is currently stored on-premises.

In Clark’s view, in the future, more data will be generated at the edge of networks outside data centers than inside data centers. Therefore, he argued that “AI will eventually be deployed next to where the data is created, driven by latency.”

Amazon CEO Andy Jassy said in his company’s October 2023 Q3 call: “[C]customers want to bring [AI] That might sound like he and Clark are on the same page. However, Jassy also stated in Amazon’s 2023 Q1 call that he believes the heavy concentration of IT spending currently on the premises will move to the cloud, with Amazon Web Services (AWS) benefiting from this transition.

Microsoft CEO Satya Nadella stated in January 2023, “The age of AI is upon us and Microsoft is making it happen.” He made this statement in the context of discussing Microsoft’s cloud platform, boasting that his company had “the most powerful AI supercomputing infrastructure in the cloud.”

What does Alphabet think? CEO Sundar Pichai said in his company’s latest quarterly update that AI is “driving interest and early adoption of Google Cloud.” This AI boom is the main tailwind that has driven Alphabet’s stock higher over the past twelve months.

But if Clark is right that the future of AI is on-premises and not in the cloud, the growth prospects for Amazon, Microsoft and Google may not be as strong as their CEOs and investors expect. In Dell’s vision of what’s coming, on-premises devices could be more important than cloud platforms.

Cheers all around

Should Amazon, Microsoft and Alphabet Investors Be Worried? I do not think so. The underlying reasons why organizations continue to move their apps and data to the cloud are not going away. Cloud platforms help reduce overall costs and offer more flexibility and scalability than on-premise data centers.

That said, I think Clark is probably right when he says that the use of AI on local devices will increase. He is also absolutely right when he says that customers are only at the beginning of AI implementation.

In my opinion, there is good news for all these companies. Nvidia and AMD should win as demand for GPUs soars. Dell should win as demand for AI-optimized servers grows. Amazon, Microsoft and Alphabet should win as more customers build AI apps in the cloud. Everyone has something to cheer about.

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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Keith Speights has positions at Alphabet, Amazon and Microsoft. The Motley Fool holds positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.

Dell gave Nvidia and AMD investors something to cheer about — and Amazon, Microsoft and Google investors something to perhaps fear was originally published by The Motley Fool

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