If the tech giants decide to undertake significant operating and CapEx cuts, the chip industry may be in for an extended slump. Amazon, Google, and Microsoft operate the largest public cloud services and have collectively shelled out $120.6 billion in capital expenditures in the last four quarters. Along with Facebook, they plan on scaling back their expenses next year, which can hinder the recovery attempts made by semiconductor leaders like Nvidia.
Recent trends from Nvidia and Micron depict a contrasting but deceptive picture
With the publication of the third quarterly results, Nvidia proved analysts wrong as its revenue surpassed their estimates by 2%. It quashed Wall Street’s evaluations regarding its data center and videogames segments. Furthermore, it has announced a slew of introductions in both domains for 2023, the GeForce RTX 4060 being one of them.
On the other hand, Micron surprised everyone as it revealed its plans to reduce DRAM semiconductor memory production in the upcoming year. While this proposal seems pragmatic as the company aims to tackle the repercussions of oversupply, Morgan Stanley’s Joseph Moore called it ‘unprecedented.’
While Nvidia and Micron hint at two different trends, the reality does not inspire confidence for recovery in the chip industry till at least the fourth quarter, concluding in January. Compared to last year, Nvidia’s gaming sector revenue got reduced by 51%. Similarly, its growth in the data center sphere of 31% (year-over-year) is nearly half of the second quarter’s numbers.
Nvidia’s banking on Hopper’s success but fate lies in Tech giants’ hands
Nvidia is launching a new GPU, Hopper and a CPU, Grace, targeting its data center segment in 2023. Hopper will deal with AI computing in data centers, and the company’s Chief Executive, Jensen Huang, remains optimistic about its success.
With data centers emerging as Nvidia’s most profitable segment, inching out gaming, Hopper’s performance can make or break the company’s quest toward recovery. Nvidia aims to sell the avant-garde graphics processor in enormous numbers in the first quarter of the next financial year.
However, it all comes down to cloud giants’ eagerness to spend on capital expenditures. The big tech companies have been planning to slash their costs, which can result in CapEx cuts too. Microsoft has embarked on its plans of cutting costs through layoffs and reducing company gatherings. Google has also hinted at measures to reduce spending, and so has Amazon, which will affect about 10,000 of its employees next year.
Moreover, the mega tech companies have a glut of memory in their inventories, which has lowered the demand for chips. Micron’s warning to decrease the production of DRAM memory also hints at the same.
Once the inventories get exhausted, the tech conglomerates will have to purchase from Nvidia, Micron, and others. However, they cannot afford to wait too long as the semiconductor’s prices are expected to spike after Micron’s production cutback.
Thus, the chip industry’s resurgence depends on Big Tech’s inclination to shell out money and its timing. Any delay or cutting back on expenditures will augment the slump for the chip suppliers.