Broadcom Stock Rises After Nvidia Earnings. How the Results Impact the Chip Sector.

Nvidia CEO Jensen Huang said he anticipates the largest AI companies will spend $3 trillion to $4 trillion over the next five years. (Getty Images/Cultura RF)

Nvidia earnings are a bellwether for the chip sector and peers were mixed following the company’s earnings. An upbeat forecast for artificial-intelligence spending was being balanced against slowing growth.

Chip stocks initially fell in after-hours trading as the market focused on Nvidia missing expectations for its vital data-center segment. However, those losses were subsequently pared.

American depositary receipts of Taiwan Semiconductor Manufacturing —Nvidia’s key supplier—were down 1.4% Thursday morning. Micron Technology, which provides memory chips for integration into Nvidia’s hardware, was up 0.9%.

Nvidia CEO Jensen Huang said he anticipates the largest AI companies will spend $3 trillion to $4 trillion over the next five years. He noted that for every $50 billion to $60 billion that companies spend on AI data centers, Nvidia can capture around $35 billion of that spending.

“[Nvidia] management expects cumulative data center spending of up to $4 trillion over the rest of the decade, while Nvidia has captured about a third of such capital expenditures to date. We view these estimates as both reasonable and a sign that AI spending will not decline anytime soon,” wrote Morningstar analyst Brian Colello in a research note.

That’s good news for the chip sector as a whole but Nvidia’s Huang also dismissed the prospect of the company’s biggest clients moving to rival hardware.

“We’re in every cloud for a good reason. Not only are we the most energy efficient. Our perf [performance] per watt is the best of any computing platform. And in a world of power-limited data centers, perf per watt drives directly to revenues,” Huang told analysts on an earnings call.

Among Nvidia’s would-be rivals, Advanced Micro Devices was up 0.8%. Broadcom was rising 2.4% to $307.50.

Broadcom will report its own earnings next Thursday. Wall Street is generally positive on its prospects—Susquehanna analyst Christopher Rolland raised his target price on the stock to $350 from $300 in a research note this week, citing strong demand for its custom AI chips.

Write to Adam Clark at adam.clark@barrons.com