Like a football player about to get obliterated performing a lateral pass to a teammate, Meta Platforms (NASDAQ:META) got the raw end of the action. However, Meta’s sacrificial act helped underscore the contrarian bullish narrative of semiconductor specialist Nvidia (NASDAQ:NVDA). With Meta unexpectedly revealing in its latest earnings disclosure its intention to boost capital expenditures in data centers, servers and network infrastructure, the announcement boosted NVDA stock.
According to Bloomberg, Meta’s third-quarter earnings report revealed that it projects “capital spending of $34 billion to $39 billion in 2023, up from $30 billion to $34 billion this year.” Despite challenges to its foray into the metaverse – essentially the next generation of internet connectivity – Meta remains committed to its drive of pushing digitally immersive experiences.
Wells Fargo analysts succinctly summarized Wall Street’s reaction. “Amidst increased question/concern that Meta would significantly reduce their forward capex guide in conjunction with third quarter results, tonight we got the absolute opposite,” market expert Aaron Rakers said in a report by the firm.
As well, Bloomberg emphasized:
“While Meta’s spending plans are a boon to its suppliers, it was received poorly by investors skeptical of the high costs associated with its strategic shift. The stock dropped 14% after the company projected weaker-than-expected sales in the current quarter.”
To be sure, NVDA stock gained more than 3% in the afternoon session. Rivals Advanced Micro Devices (NASDAQ:AMD) and Marvell Technology (NASDAQ:MRVL) gained about 1% and 4%, respectively.
NVDA Stock Takes a Necessary Win
Needless to say, it’s not prudent for Nvidia to wish Meta to continue pushing the capex needle beyond sustainability. Otherwise, the boost may represent a one-off situation and possibly lead to significant volatility down the road. Still, NVDA stock needed a win, and it will take it.
That said, Meta’s Q3 announcement embodies a strange circumstance as the focus centered on its partners, not Meta itself. “At the midpoint, guidance implies capex grows +75% year-over-year in 2022 and over 12% in fiscal 2023,” Raymond James analyst Simon Leopold said to clients in a research note. The analyst also expects upside for Arista Networks (NYSE:ANET) and Ciena (NYSE:CIEN).
“These (Meta) investments target data centers, servers, and network infrastructure with AI capacity expansion driving substantially all the capital expenditure growth in 2023,” Leopold added.
For NVDA stock, the underlying emphasis on artificial intelligence could help Nvidia rise above the rest. More than just a manufacturer of graphics processing units, Nvidia over the years invested heavily in deep learning and artificial intelligence solutions. Also, its architecture undergirds and partners with academic research on potential AI applications.
Nevertheless, the road may be rocky. Despite the Thursday uptick, NVDA stock currently trades around 56% below parity on a year-to-date basis.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.