Nvidia climbs 2.3% to $211 as AI infrastructure optimism returns

Nvidia shares climbed 2.3% to $211.48 in early trading Tuesday, extending a rebound as renewed optimism over AI infrastructure spending lifted semiconductor stocks and pushed US equities to fresh record highs.

"Short-term growth in revenue and margins is the new dividing line," Bill Birmingham, managing director at REX Financial, said, as investors weigh whether the industry's unprecedented capital spending can translate into returns.

The gain follows a 2.9% advance in the prior session, leaving the stock about 13% below its all-time high of $236.54. Nvidia's four largest customers — Amazon.com, Microsoft, Alphabet and Meta Platforms — have guided to combined capital expenditures of $720 billion to $745 billion for 2026, roughly 2.2 to 2.3 times Nvidia's annualized first-quarter revenue of $326.4 billion. Amazon's AWS revenue climbed 37% to $42.2 billion, while Microsoft's Azure grew 43% and Alphabet's Google Cloud advanced 82% to $24.8 billion.

The rebound comes ahead of Nvidia's fiscal second-quarter earnings on Aug. 26, where analysts project earnings of $2.08 per share. The stock trades at about 22.3 times projected fiscal 2027 earnings of $9.01, down from 28.5 times in May even as the consensus estimate has risen 8.8% over three months.

Capex Boom Faces a Cash-Flow Test

The rally masks lingering concerns over whether AI spending can be sustained. Alphabet reported negative free cash flow of $5.9 billion in the quarter, while Meta's free cash flow fell 91% to $784 million. Amazon posted a trailing free cash flow outflow of $7.6 billion, and Microsoft's quarterly free cash flow declined 23% to $19.6 billion. The divergence between revenue growth and cash generation has become the central fault line in the AI trade, with investors punishing any company whose infrastructure outlays threaten near-term profitability.

Memory Bottlenecks and 'Circular Financing' Concerns

Nvidia's shipment pace faces a constraint in high-bandwidth memory (HBM), the fast memory chips that feed its accelerators. Chief Executive Jensen Huang has called memory the biggest bottleneck for AI development, and upstream graphics memory costs continue to climb. The company has sent price-hike notices for GPU bundles to graphics card makers, while memory suppliers SK Hynix, Samsung Electronics and Kioxia have seen their shares swing sharply over the past month.

Separately, Wall Street has debated whether Nvidia's infrastructure deals with SK Group and OpenAI, totaling up to $750 billion, amount to "circular financing" — funds flowing from Nvidia to customers and back to Nvidia's books as revenue. Prominent investor Michael Burry has flagged a potential $250 billion demand risk, and the company's $119 billion in supply commitments, alongside $30 billion in cloud commitments and $27 billion in investment commitments, add execution risk if demand weakens.

Advanced Micro Devices reports earnings after the close Tuesday, with its data-center segment expected to drive 91% of annual sales growth, offering the next read on AI chip demand. Nvidia's median FactSet price target stands at $300, implying roughly 49% upside, with the lowest target at $180. The stock's lower multiple means investors are paying less for each projected profit dollar — raising the premium on strong performance and amplifying the impact of any disappointment.

This article is for informational purposes only and does not constitute investment advice.