TLDR: Nvidia Stock Falls 1.7% in Premarket Trading Ahead of Meta and Microsoft Earnings

Nvidia (NASDAQ:NVDA) stock edged down by 1.7% in premarket trading Wednesday to $107.20. The slight downturn follows a modest 0.3% gain during Tuesday’s regular session.

Investors are focused today on earnings reports from Meta (NASDAQ:META) and Microsoft (NASDAQ:MSFT), which are set to be released later this morning.

These reports could offer key insights into future AI spending plans of large tech companies, a factor that investors will be closely monitoring.

The capital expenditure forecasts from these tech giants will be particularly important for Nvidia. Strong investment commitments would signal continued demand for Nvidia’s AI chips, which are used to power the internals of data centers.

However, recent developments have raised questions about Nvidia’s market position. Super Micro Computer (NASDAQ:SMCI), which builds servers using Nvidia chips, issued a warning that its third-quarter earnings would miss expectations.

Super Micro attributed the shortfall to “delayed customer platform decisions.” This statement suggests customers might be postponing purchases of servers with Nvidia’s current Hopper architecture.

Instead, they are likely waiting for the new generation of Blackwell processors, which are still in the early stages of development.

New Competitors Enter the Scene

As Nvidia manages this transition, the competitive landscape is becoming more crowded. Huawei is preparing to launch what it calls its most powerful AI processor yet.

The Chinese tech company is venturing into Nvidia’s core market with this new chip, a direct indication of its competitive intent.

This move comes at a time when U.S. sanctions restrict Nvidia from selling its most advanced chips to Chinese customers.

Huawei is aiming to fill this void in the Chinese market, potentially capturing a greater share of the market that might otherwise belong to Nvidia.

Highlighting the increasing pressure on chip stocks, Veteran market analyst Stephen Guilfoyle recently disclosed that he had sold out of his long-held positions in both Nvidia and AMD (NASDAQ:AMD).

“I got out of both of those names, I had whittled down those positions as they eroded. I liked them both at the price I bought them, but I got out of them yesterday,” Guilfoyle, known for his role in the British film "The Bank Job," stated.

He explained his decision further, adding, “I have no lack of respect for Lisa Su or Jensen Huang, they are fantastic leaders in a changing market.”

Pointing towards the broader market trends, Guilfoyle noted that hyperscalers in the U.S. are increasingly diversifying their chip suppliers or even creating their own chips.

Companies like Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) have made significant strides in developing custom silicon, which reduces their reliance on traditional chipmakers.

This technological shift impacts chipmakers like Nvidia and AMD, potentially affecting their pricing power. “I don't think they have pricing power the way they once did,” Guilfoyle observed.

Indeed, Amazon CEO Andy Jassy touched upon this very topic in his recent letter to shareholders. While highlighting the strength of capital expenditure in areas like AI, Jassy also noted that Amazon now makes many of its own chips.

This strategy to develop internal capabilities is part of Amazon’s broader effort to increase efficiency and reduce costs.

As the balance of power in the chip industry shifts, investors will be closely following earnings reports from Meta and Microsoft for any indication of future spending plans on AI infrastructure.

These reports could provide short-term direction for Nvidia’s stock price. AMD edged down by 0.7% in premarket trading by 0.7%, while Broadcom (NASDAQ:AVGO) fell by 0.6%.