Nvidia, Broadcom, AMD, others to benefit from hyperscaler cloud spending in 2023
Andrei Berezovskii/iStock Editorial via Getty Images

Bank of America maintained its buy ratings on Nvidia (NASDAQ:NVDA), Broadcom (NASDAQ:AVGO), AMD (NASDAQ:AMD) and several other semiconductor companies on Wednesday after data showed that major hyperscalers are expected to grow cloud spending in the near-term.
In a note to clients, analyst Vivek Arya said that Bank of America's cloud capex tracker showed major cloud companies such as Meta (META), Amazon (AMZN) and Google (GOOG) (GOOGL) are estimated to grow cloud spending at $44.3B in the fourth-quarter. While the 7% year-over-year growth rate would be the lowest since 2019, data for 2023 indicates that cloud spending is likely to rise to $178B for the full-year, up 6% year-over-year, slightly above the firm's 5% estimate. That's well below the 28% compound annual growth rate and more in line with the 2019 downturn, but there are some pockets of strength, given that cloud spending can be "volatile in nature," Arya explained.
"Cloud spending [is] historically volatile in nature (2-3 years spending growth, 2-3 [quarters] digestion), but we look past near-term macro, focusing on 25%-30% historical spending [compound annual growth rate] necessary to support growing cloud activity," Arya wrote in a note to clients.
Arya also said Oracle (ORCL) is ramping up its cloud investments and is now at a run rate of $2.4B per quarter, up 40% sequentially. This is seen as a positive for Nvidia (NVDA), since it is a "critical supplier" of the IT giant, Arya posited.
China's major tech companies, including Alibaba (BABA), Tencent (OTCPK:TCEHY) and Baidu (BIDU) are also poised to grow cloud spending in 2023, following a weak 2022, further aiding the chip sector.
Delving deeper, Arya noted that tech investment is still "vital" for cloud services, and Amazon's (AMZN) Web Services, Microsoft's (MSFT) Azure and Google's (GOOG) (GOOGL) Cloud sales are still forecasted to grow 26% and 25% year-over-year in 2023 and 2024. Coupled with the fact that artificial intelligence-focused recommendator systems need constant support, cloud-related spending is not likely to stop anytime.
In addition to having buy ratings on Nvidia (NVDA), Broadcom (AVGO) and AMD (AMD), Arya also highlighted Marvell Technology (MRVL) and Credo Technology (CRDO) as likely beneficiaries of increased cloud spending.
Semiconductor capital equipment companies such as Applied Materials (AMAT) and KLA Corp. (KLAC) see "indirect benefits" from increased cloud spending, but they are likely to benefit due to "rising complexity required to build advanced AI chips." 
Last month, investment firm UBS picked AMD (AMD) and Nvidia (NVDA) among its top semiconductor stocks for 2023.