Dell gave Nvidia and AMD investors something to cheer about, and Amazon, Microsoft, and Google investors probably something to fear.

You don’t have to read the tea leaves to find out about the company’s prospects. However, it’s not a bad idea to read the report cards of other companies in the same industry. Sometimes, executives from competitors, customers, or suppliers share quarterly updates that provide insights you can’t get anywhere else.

Dell Technologies (dell -2.25%) Maybe it was last week. On February 29, the tech company held its quarterly conference call to discuss its fourth quarter results. During the call, Dell said: nvidia (NVDA 3.60%) and advanced microcomputer (AMD 1.34%) Investors have something to cheer about. And maybe it’s Amazon (AMZN -0.36%), microsoft (MSFT -0.14%)and Google parent company alphabet (GOOG -2.81%) (google -2.76%) Investors have something to fear.

Something to cheer for

Like many companies, Dell is enjoying strong tailwinds from the adoption of artificial intelligence (AI). COO Jeff Clark said during his fourth quarter conference call that his company has high demand for AI-optimized servers. Clark added that Dell’s flagship PowerEdge XE9680 is “the fastest-growing solution in the company’s history.” Overall, fourth-quarter orders for the company’s AI-optimized servers increased nearly 40% from the previous quarter.

Why should this be exciting for Nvidia and AMD investors? Dell’s AI-optimized servers use graphics processing units (GPUs) from Nvidia and AMD. Clark said the high demand was “spread across the H100, H800, H200 and MI300X.” The first three of the GPUs are manufactured by Nvidia and the last GPU is manufactured by AMD.

“Demand continues to outpace GPU supply,” Clark noted. He said there is “huge interest” from customers for servers with next-generation AI GPUs such as Nvidia’s H200 and AMD’s MI300X. Importantly, Clark points out that “most customers are still in the early stages of their AI journey.”

Any comments from Dell COO will bring smiles to Nvidia and AMD investors. The picture Clark paints is one of huge current demand for GPUs from both chipmakers that seems unlikely to slow down.

Of course, few people will find anything Clark says surprising. But it’s nice to hear confirmation from an industry leader not affiliated with Nvidia or AMD. And his comments seem to help justify the massive gains both stocks have achieved so far this year.

Is there anything to be afraid of?

But Amazon, Microsoft, and Alphabet investors may not like Clark’s other statements. He seemed to be intentionally debunking the prediction that the future of AI is in the cloud.

“We believe the long-term AI action is on-premise, where customers can keep their data and intellectual property safe,” Clark said. He pointed out that about 83% of all data is currently stored on-premises.

In Clark’s view, in the future, more data will be generated outside the data center, at the edge of the network, than inside the data center. Because of this, he argued that “AI will ultimately be deployed next to where data is generated, with latency in mind.”

Amazon CEO Andy Jassy said the following during the company’s third quarter conference call in October 2023: “(C)ustomers want to bring (AI) models to their data, not the other way around.” He might sound like he and Clark are on the same page. However, Jassy said on Amazon’s Q1 2023 call that he believes IT spending currently focused on on-premises will move to the cloud and that Amazon Web Services (AWS) will benefit from this shift.

Microsoft CEO Satya Nadella declared in January 2023, “The AI ​​era has arrived, and Microsoft is supporting it.” He made these remarks in the context of discussing Microsoft’s cloud platform, boasting that his company has “the most powerful AI supercomputing infrastructure in the cloud.”

What do you think of the alphabet? AI is “driving interest and early adoption” for Google Cloud, CEO Sundar Pichai said in the company’s latest quarterly update. This AI boom has been a major tailwind driving Alphabet’s stock price higher over the past 12 months.

But if Clark is correct that the future of AI is on-premises rather than in the cloud, the growth prospects of Amazon, Microsoft, and Google may not be as strong as their CEOs and investors expect. In Dell’s vision for the future, local devices may be more important than cloud platforms.

cheers from all around

Should Amazon, Microsoft, and Alphabet investors be worried? I don’t think so. The fundamental reasons why organizations continue to move apps and data to the cloud aren’t going away. Cloud platforms lower total costs and provide more flexibility and scalability than on-premises data centers.

That said, I think Clark is probably right that the use of AI on local devices will increase. You are also absolutely right that our customers are in the early stages of AI deployment.

I think there’s good news for both of these companies. As GPU demand surges, Nvidia and AMD should win. As demand for AI-optimized servers grows, Dell should win. Amazon, Microsoft, and Alphabet will win as more customers build AI apps in the cloud. Everyone has something to cheer about.