Why hyperscalers’ quarterly reports were great news for Broadcom and uninspiring for Nvidia
Meta sounded much more committed to a multiyear period of huge investments than Microsoft.
Sure, Microsoft and Meta released earnings on Wednesday, but what they were really reporting was how long we can expect the chip designers key to the AI boom to keep delivering ever-expanding windfall profits.
The capex outlook for these so-called hyperscalers is the earnings outlook for the likes of Nvidia and Broadcom.
Nvidia is roughly flat this morning after Wednesday’s steep losses, while Broadcom is soaring. What gives?
Well, you can pinpoint the moment when Nvidia erased its after-hours gains on Wednesday evening. During Microsoft’s conference call, Chief Financial Officer Amy Hood said:
“In FY ’26, we expect to continue investing against strong demand signals, including customer contracted backlog we need to deliver against, across the entirety of our Microsoft Cloud. However, the growth rate will be lower than FY ’25, and the next spend will begin to shift back to short-lived assets, which are more correlated to revenue growth.”
(Note: Microsoft’s FY26 begins in July 2025.)
Now, “growth rate will be lower” still = “capex line go up.”
It’s a similar dynamic to what we’ve seen in discussions about inflation and prices: inflation can slow, but so long as it’s not negative, prices will continue to rise. Just replace “inflation” with “investment growth” and “prices” with “capex,” and that’s what Microsoft is telegraphing here.
So, Microsoft’s tree of AI-linked capex may yet still grow to the sky, but not in a parabolic fashion.
Meta CEO Mark Zuckerberg, however, kicked off the call that followed earnings with remarks that included a resounding resolve to just keep spending:
“These are all big investments, especially the hundreds of billions of dollars that we will invest in AI infrastructure over the long-term… We’re planning to fund all of this by, at the same time, investing aggressively in initiatives that use these AI advances to increase revenue growth, and we’ve put together a plan that will hopefully accelerate the pace of these initiatives over the next few years. That’s what a lot of our new headcount growth is going towards.”
Later, he added in response to a question about whether the emergence of DeepSeek changed the outlook for capex:
“And I continue to think that investing very heavily in CapEx and infra is going to be a strategic advantage over time. It’s possible that we’ll learn otherwise at some point, but I just think it’s way too early to call that. And at this point, I would bet that the ability to build out that kind of infrastructure is going to be a major advantage for both the quality of the service and being able to serve the scale that we want to.”
Meta partnered with Broadcom to make custom chips for its AI infrastructure, so Zuckerberg’s undaunted pursuit of AI dominance through greater and greater levels of compute appears to be a boon for this company in particular.
This, again, is where we go back to Nvidia’s 2026 estimates, which are very high relative to the rest of the industry and every megacap stock. Analysts see earnings growth north of 100% for Nvidia this year, with that expanding by a further 50% next year. Meanwhile, Broadcom’s bottom line is projected to be up over 100% this year but a little more than 20% in 2026.
But the message we got on Wednesday evening is that the multiyear commitment to AI-linked investments was much stronger for a critical Broadcom customer.
So while Broadcom appears more expensive than Nvidia when you compare the forward price-to-earnings ratio of each stock, I would argue the more relevant story here is that Broadcom’s estimates are too low (or Nvidia’s too high) once we start to expand the time horizon under consideration.
