Microsoft's CEO, Satya Nadella, made a statement that might bring troubles for Nvidia but could signal prosperous times for a particular commodity stock, forecasted for 2025.
In the realm of tech investments, AI continues to be a significant focus due to its transformative potential. However, the market's winners and losers can swiftly change in this rapidly evolving sector. Recently, Microsoft CEO Satya Nadella made some comments that might impact the 2023 and 2024 heavyweights, Nvidia.
No More Chip Constraints for Microsoft
During a podcast with Brad Gerstner and Bill Gurley, Nadella discussed AI. While the overall conversation was upbeat regarding AI's future, one point stood out. When asked about Microsoft's supply constraints for Nvidia chips, Nadella mentioned relief:
I am power constrained, yes, I'm not chip supply constrained ... We were definitely constrained in '24. What we have told the street is that's why we are optimistic about the first half of '25 which is the rest of our fiscal year. And then after that I think we'll be in better shape going into 2026 and so we have good line of sight.
Since Nadella's statement, Nvidia's stock has seen a slight dip. This isn't surprising considering the massive demand for Nvidia's chips over the past year, leading to high margins for its graphics processing units (GPUs). Microsoft, being Nvidia's largest client, accounting for around 20% of its sales last year, was supply-constrained, affecting its Azure cloud growth, particularly for AI workloads.
However, if Nadella's hints signal an end to these supply constraints, it could mean one of three scenarios: a slowdown in AI demand, improved chip supply, or a combination of both.
Is AI's Pace of Improvement Slowing Down?
Rumors suggest that the pace of AI improvements might be less rapid than anticipated, which could potentially impact AI chip purchases. Nevertheless, most industry players remain bullish on AI demand. Another possibility is that Microsoft is anticipating a significant increase in the production of its in-house developed Maia accelerators and Cobalt CPUs.
Microsoft introduced Maia accelerators and Cobalt CPUs at the end of 2023, aiming to reduce its overarching dependence on Nvidia's costly GPUs. If the production of Maia chips ramps up effectively, Microsoft could alleviate its chip constraints, indicating higher volume production rather than a decrease in AI chip demand.
Could Natural Gas Stocks Outperform Nvidia in 2025?
Nadella's mention of power constraints is particularly intriguing, considering the potential unprecedented demand for electricity due to the growth of AI data centers. While renewables have a role to play, they don't provide consistent power; therefore, natural gas stands out as a quick and efficient solution.
Famous hedge fund manager David Tepper recently suggested that natural gas is the only viable option to meet the increased electricity demand caused by AI. Investors might consider natural gas stocks as potential "AI winners" in 2025, particularly those with easy-to-build facilities for supplying power directly to AI data centers.
EQT Corporation, for instance, is a popular choice due to its ample reserves in the Marcellus and Utica shale formations. With its recent acquisition of Equitrans, EQT can produce, gather, process, store, and transport natural gas at an advantageous cost. This provides EQT with a unique competitive edge in the natural gas market.
- Nadella's relief about Microsoft's supply constraints for Nvidia chips could potentially impact the market's prospects for AI chip providers, as it might lead to changes in demand or supply.
- Investors interested in the tech sector might want to consider the prospects of natural gas stocks in 2025, given the potential role of natural gas in meeting the increased electricity demand for AI data centers.
- In light of Nadella's statement, both Microsoft and Nvidia stand to gain from improved chip supply or a slowdown in AI demand, although the implications for their respective businesses could vary significantly.
- Microsoft's core weave seems to be shifting towards reducing its dependence on Nvidia and other external chip providers, with the company's development of its own Maia accelerators and Cobalt CPUs taking center stage.
