AWS Just Delivered Great News for Nvidia Shareholders

Nvidia (NASDAQ: NVDA) has faced its share of negative news in recent weeks, from a halt on its exports to China to uncertainty about tariffs on imports into the U.S. of its chips. That's why the generally high-flying stock has flown much lower in recent times. Nvidia, after soaring 800% over the past two years, has slipped 26% since the start of the year.

The U.S. recently informed Nvidia that it would need a license to continue selling its chips to China -- meaning the company can't fulfill current orders, and the company said it would take a $5.5 billion charge. This is against an already difficult backdrop of potential import tariffs ahead. President Donald Trump exempted electronics from tariffs but indicated this would be temporary.

Investors have worried that Trump's plans to tax imports could increase Nvidia's costs, as the company produces most of its top-selling artificial intelligence (AI) chips in Taiwan, and hurt growth. Another concern is tariffs could weigh on Nvidia's customers too, and they may rein in spending on AI. But just this week, a comment from an executive at Amazon's (NASDAQ: AMZN) Amazon Web Services (AWS) offered investors some relief from the uncertainty. In fact, AWS delivered great news for Nvidia shareholders.

Image source: Getty Images.

The "on ramp" to AI

First, though, let's consider where Nvidia stands right now, amid the current turmoil. Nvidia is the world's No. 1 designer of AI chips, known as graphics processing units (GPUs). These chips, along with related products and services, have helped Nvidia build an AI empire. Chief Executive Officer Jensen Huang has even referred to Nvidia as the "on ramp" to AI since it has the tools to help customers with all of their AI needs.

This has helped Nvidia grow its revenue in the double and triple digits, reaching record levels in recent times. For the latest full year, Nvidia reported a 114% gain in revenue to a mind-boggling $130 billion. And 88% of this came from the company's data center business, the business serving AI customers. All of this means Nvidia's growth prospects are closely linked to its AI customers' spending plans.

From this angle, the year started off on the right foot, with Meta Platforms saying it would spend as much as $65 billion to support AI growth this year and companies including Alphabet and Amazon also talking about their focus on AI investment. But investors started to question whether this would continue as general market uncertainty deepened.

Analysts and economists have suggested that Trump's tariffs could result in higher prices for everyone, leading to an economic slowdown and even a recession. Just this week, the International Monetary Fund predicted U.S. growth this year will slow to 1.8%, down from 2.8% last year. In such a situation, investors have closely watched for any changes in companies' AI spending plans.

Bad news...and then good news

In fact, an analyst report suggesting an AWS slowdown in AI spending dragged down shares of Nvidia in one trading session earlier this week. AWS is a major customer of Nvidia, offering its products to cloud customers. The good news, however, followed quickly.

Kevin Miller, AWS vice president of global data centers, in a post on LinkedIn directly addressed concerns about the company's AI infrastructure projects -- and his words don't indicate a slowdown.

"This is routine capacity management, and there haven't been any recent fundamental changes in our expansion plans," he wrote in a post on Monday.

Demand for AI

Instead, he said, any changes are due to the fact that AWS considers various solutions at the same time, allowing it to, for example, decrease capacity in one area and increase it in another. So, any recent moves haven't been part of a reduction in capacity. Miller added that AWS continues to see "strong demand" for generative AI and foundational workloads.

All of this means that, though Nvidia may face headwinds such as tariffs in the months to come, demand for its products and services isn't showing signs of weakness. Customers continue to invest heavily in AI, and Nvidia, as the AI leader, is well positioned to benefit. A slowdown in economic growth could even push companies to prioritize their AI programs, with the idea that AI will make them more efficient.

So, though Nvidia may face some bumps along the road in the near term, this stock still is likely to offer investors a win over the long haul.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.