Key Points
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Nvidia and Broadcom could be selling more computing units to Alphabet.
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Soaring memory chip prices caused another AI hyperscaler to boost its guidance as well.
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Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) is the largest AI hyperscaler, sitting at a $4.35 trillion market cap. It is a major player in the AI realm, as it has a dominant cloud computing service and is also competing with its own family of large language models. The decisions that it makes influence the entire industry, and several equipment providers in the AI industry are thrilled about Alphabet's latest announcement.
During Alphabet's Q2 earnings release, it increased its capital expenditure guidance range from $180 billion-$190 billion all the way up to $195 billion-$205 billion. That's a huge bump from CEO Sundar Pichai and his team at Alphabet, but if demand is there, then this increase makes a ton of sense. There are several companies slated to benefit from this rise, but chief among them are Nvidia (NASDAQ: NVDA), Micron (NASDAQ: MU), and Broadcom (NASDAQ: AVGO). This trio is thrilled about rising spending, and they make for great investments now.
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Nvidia and Broadcom
Nvidia and Broadcom are two of the primary beneficiaries of this announcement. Each of them supplies Alphabet with computing units, and an increase in spending is music to their ears. Nvidia makes broad-purpose GPUs that are the gold standard in accelerated computing. Every product is compared to Nvidia's flagship units, and Alphabet has always been a major customer, using Nvidia's GPUs for internal computing purposes as well as renting them out through Google Cloud.
However, Alphabet has to pay Nvidia quite a lot for its GPUs, so it has also worked with Broadcom to develop custom AI computing units that can rival Nvidia's products. These custom AI chips are the reason why Alphabet has become the fastest-growing cloud computing business, and they're so popular that external clients are starting to buy them from Alphabet.
Regardless, when Alphabet states that it is increasing its capital expenditure guidance, Nvidia and Broadcom investors have reason to celebrate. Still, the market isn't as bullish on these two as it once was.
Neither Nvidia nor Broadcom are maintaining quite the premium that they once were, making their stocks intriguing buys now. With all indications pointing toward an increase in data center spending during 2027, I think each of them makes for a great buy now.
Micron
Another reason for soaring capital expenditure costs is rising memory chip prices. Micron is one of the primary manufacturers of memory chips, and it's feeling this demand and delivering simply incredible growth rates. Next quarter, Wall Street expects revenue to grow 349% and earnings per share to rise from $3.03 last year to $31.33 this year. Someone has to pay for those increasing costs, and companies like Alphabet are footing the bill.
In fact, one of Alphabet's rivals, Amazon, also boosted its capital expenditure guidance for this year, specifically calling out rising memory chip prices as the reason for the rise. With Alphabet raising its guidance, too, it's likely that memory chips are to blame, which is why Micron may be a perfect buy right now.
There isn't any remedy for soaring memory chip prices in sight, and with prices continuing to rise, it's clear the market hasn't quite found the right pricing balance. With capital expenditures expected to ramp up in 2027 and beyond, it may be some time before it can.
That bodes well for Micron's stock, and with it down over 30% from its all-time highs, I think it's a great stock to scoop up on the news that Alphabet is boosting its spending guidance for the year.
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Keithen Drury has positions in Alphabet, Broadcom, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Broadcom, Micron Technology, and Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.