Big lesson from this week’s earnings: AI buildout is not a zero-sum game
This week’s impressive earnings results showed that the AI buildout is not a zero-sum game: both hardware and software stocks can win. The tech-heavy Nasdaq Composite and the S & P 500 gained 0.9% and 0.5%, respectively, while the blue-chip Dow Jones Industrial Average added 0.5%, marking its first winning week in three. Much of the gains came Thursday, when the ripple effects of Nvidia’s stellar earnings and forward guidance helped lift all three averages to their best days since Aug. 4. Stocks were little changed on Friday following Fed Chairman Kevin Warsh’s Jackson Hole speech, in which he said that recent inflation data has not eased his concerns about underlying price pressures, keeping the possibility of another rate hike on the table. Traders raised the odds of a September hike to 55%, up from about 35% a day earlier, according to the CME FedWatch tool . Here’s a closer look at three developments that drove our portfolio this week. Nvidia puts AI demand worries to rest The AI chip leader delivered better-than-expected fiscal second-quarter results on Wednesday, marking its fourth straight quarter of accelerating revenue growth, and issued a surprisingly strong outlook for next fiscal year . The results reinforced confidence in AI demand, lifting the broader trade Thursday. Nvidia shares ended the week up 1%. We also learned on the earnings call that Amazon will purchase an additional 2 million Nvidia GPUs in 2027 and 2028, despite developing its own AI chips. The commitment supports Nvidia’s argument that customers are generating enough returns on its AI infrastructure to justify continued spending. CEO Jensen Huang said that “return on investment capital is now less than a year.” As Jim put it, “The profits are here now , customers are using them, and they’re making a killing.” The willingness to spend on Nvidia’s products has broadened beyond the hyperscalers . Nvidia finance chief Colette Kress said the company’s growth in the current quarter will primarily be driven by non-hyperscaler customers, which includes so-called neoclouds like CoreWeave and Nebius , as well as enterprises. We came away even more confident in Nvidia. Demand is accelerating, customers are seeing tangible returns, and supply remains the constraint. We raised our price target to $280 from $260. AI as software tailwind Salesforce delivered better-than-expected revenue and an upbeat outlook Wednesday, offering fresh evidence that AI is helping rather than cannibalizing its business. CEO Marc Benioff called fears of a “SaaSpocalypse” ” nonsense, ” noting that nine of the 10 leading AI companies use Salesforce products and that their spending is up 435% year over year. Salesforce also unveiled Claudeforce , which allows salespeople to use Anthropic’s Claude to tap customer data stored in Salesforce and perform tasks such as composing emails and updating records. CrowdStrike offered another example of AI becoming a tailwind rather than a threat. On Wednesday, the cybersecurity company reported that revenue rose 26% as AI-powered attacks drive demand for stronger defenses. CEO George Kurtz said the technology is exposing gaps in corporate defenses and “a lot of companies are recognizing that legacy technology and technology they get for free is not good enough.” We think CrowdStrike is a buy with considerably more upside ahead, especially after more than 100 other companies and entities signed a letter on Thursday urging businesses and policymakers to “act decisively” to strengthen cybersecurity defenses in the AI era. The results fueled a broader software rally Thursday, with Salesforce surging 22% and CrowdStrike jumping about 20%. They ended the week as our two best-performing stocks in the Club portfolio. Club holding Palo Alto Networks rallied 13% Thursday alongside its cyber peer. After investors spent much of the year worrying that AI would disrupt software , this week provided some of the clearest evidence yet that the best-positioned companies could instead be major beneficiaries. Meta removes a major legal overhang Meta also scored an important win on Wednesday, agreeing to an $18 billion settlement with attorneys general from 48 states, Washington, D.C., and three U.S. territories over claims that social media platforms harm young users. Jim called the resolution a ” really big break ” for the company because it eliminates the risk of a prolonged trial and potentially far greater financial penalties. On Friday’s ” Morning Meeting ,” Jim said Meta could become a buy once the legal overhang is removed, though he would wait until after any potential secondary offering to help fund the settlement and its massive AI spending. Shares dipped briefly after the announcement, but ended the week up 5%. As part of the settlement, Meta will implement additional protections for younger users, including default daily time limits, enhanced parental controls, age-verification measures, and restrictions on push notifications during school hours. Our view is that those requirements are manageable for Meta because younger users represent only a small portion of Facebook and Instagram’s audiences. The changes could actually be more impactful on YouTube and TikTok, given that younger age groups spend more time on those platforms, Jim said. Shares of Snapchat fell more than 8% on Wednesday as investors considered the possibility of broader restrictions across social media. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
