Microsoft’s $80 Billion AI Expansion: A Game Changer for Nvidia

Microsoft (NASDAQ: MSFT) captured attention last week by revealing plans to invest $80 billion this year to construct data centers aimed at training artificial intelligence (AI) models and facilitating AI and cloud applications globally. Notably, over half of this investment will take place in the U.S.

For context, Microsoft’s expenditure on AI infrastructure surpasses the gross domestic product (GDP) of several countries, including Croatia and Lithuania.

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Microsoft’s Azure cloud platform has emerged as a prominent player in AI, boasting a revenue increase of 33% year-over-year last quarter. Additionally, usage of Azure OpenAI has doubled in the past six months. Nonetheless, the company has noted that growth could potentially be higher if not for capacity issues, as demand for its AI services has surged past current capabilities.

Clues about this significant expansion surfaced earlier, with $108.7 billion in finance leases for new data centers already in place. These leases are set to kick off between fiscal 2025 and 2030, with terms varying from one to 20 years.

Nvidia Positioned to Reap the Rewards

Increased spending on data centers could greatly benefit Microsoft, considering the significant demand for its cloud services. It seems reasonable to anticipate that Nvidia (NASDAQ: NVDA) will be a major beneficiary of this investment. While not all of the $80 billion will be allocated to graphics processing units (GPUs) and AI accelerator chips—Nvidia’s key products—a considerable amount certainly will.

In fiscal 2024, which concluded in June, Microsoft incurred $44.5 billion in capital expenditures (capex), primarily directed towards data centers and cloud infrastructure. The company has stated that roughly half of its capex is used for long-lasting assets, while the other half supports central processing unit (CPU) and GPU servers.

Reportedly, Microsoft was Nvidia’s largest customer in 2024, purchasing approximately 485,000 GPUs—over twice as many as its second-largest customer, Meta Platforms. This trend indicates that Nvidia is likely to see substantial increased spending on GPUs from its top client in 2025 compared to 2024, which spells good news for the company.

Moreover, Microsoft’s existing finance leases further suggest that the company remains committed to advancing its data center investments. If $40 billion of Microsoft’s capex is allocated to long-lasting assets such as leases, that implies less than half of those leases will commence this year.

This substantial announcement could also motivate other customers of Nvidia to invest more heavily in AI infrastructure. Major tech players like Alphabet and Meta Platforms have highlighted the critical role of AI, emphasizing that the greatest risk lies in underinvestment rather than overspending. Given the competitive nature of the tech landscape, it’s likely that other large hyperscalers will also boost their spending on infrastructure.

Nvidia currently maintains a dominant position in the GPU market, capturing approximately 90% of it. The company’s CUDA software platform, which enables developers to tailor its chips for various tasks, has created a competitive edge, cementing its market presence. With Advanced Micro Devices still behind in software offerings, Nvidia is well-positioned to remain the leading player in AI infrastructure.

However, Nvidia’s strongest competition might emerge from custom AI chips developed by companies like Broadcom and Marvell Technology. These chips are tailored for specific tasks and can outperform GPUs due to their specialized nature.

That said, building large-scale AI infrastructure remains quickest and easiest with Nvidia’s GPUs, which likely ensures their continued strong market share.

Image source: Getty Images.

Evaluating Nvidia’s Stock Value

Nvidia has substantial growth prospects, especially as more companies invest in AI infrastructure. The substantial increase in investment from its largest customer indicates positive signs for Nvidia’s continued growth in 2025.

The company’s stock is currently valued attractively, with a forward price-to-earnings ratio (P/E) of about 31.4 based on 2025 analyst forecasts, along with a price/earnings-to-growth ratio (PEG) of 0.98. Generally, a PEG below 1 signals a stock is undervalued, whereas growth stocks usually have PEGs well above 1.

NVDA PE ratio (forward 1y), data by YCharts.

With Nvidia positioned to gain from Microsoft’s $80 billion data center investment and attractive stock valuation, it remains a sound choice for potential investors.

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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. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends Broadcom and Marvell Technology and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.