This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Shares of Nvidia (NASDAQ: NVDA) gained ground on Wednesday, climbing by 5.35%.
The catalyst that sent the artificial intelligence (AI) chipmaker higher was news that strong demand for its processors will likely continue.
It's all about the data center
Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) released its fourth-quarter financial report after market close on Tuesday, and investors were keen to understand how demand for AI was progressing. The company reported revenue grew 12% year over year to $96 billion, generating diluted earnings per share (EPS) of $2.15, an increase of 31%.
The results were largely in line with Wall Street's expectations, but some investors were troubled by results in the company's cloud segment. Revenue from Google Cloud grew 30% year over year to $12 billion, slightly below consensus estimates of $12.2 billion.
Management explained that the shortfall was the result of tough comps, as it began its AI deployment in the year-ago quarter. Additionally, Alphabet had greater demand for AI than it could provide, so the company is scrambling to bring more capacity online.
What does this have to do with Nvidia?
Alphabet is limited by the number of data centers it has and is investing significantly to rectify that situation. CFO Anat Ashkenazi said that the company planned to spend $75 billion on capital expenditures in 2025, noting the majority of that spending would go toward "technical infrastructure, which includes servers and data centers."
As the principle supplier of the graphics processing units (GPUs) used to power AI in data centers, Nvidia stands to directly benefit from this increased spending. This follows an announcement by Microsoft (NASDAQ: MSFT) that it plans to spend $80 billion on data centers this year, also benefiting Nvidia.
And at just 28 times next year's earnings, Nvidia stock is attractively priced.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
