Microsoft Just Announced Huge News for Nvidia Shareholders

If you're an Nvidia (NASDAQ: NVDA) investor, listening to what the artificial intelligence (AI) hyperscalers say is a must-do. These companies are huge clients, purchasing billions of dollars' worth of computing equipment from it. Microsoft (NASDAQ: MSFT) just made a big announcement regarding its plans, and it bodes well for the chipmaker.

This should be music to Nvidia investors' ears, but the market may not be as receptive.

Image source: Getty Images.

The market is still skeptical about AI spending

Currently, the market isn't accepting hefty data-center capital expenditure (capex) plans with open arms. It believes most companies are overspending and will have to deal with excess computing capacity years down the road. However, none of the AI hyperscalers believe that and are continuing to ramp up capex.

Microsoft is the latest example of this trend. It reported fourth-quarter results for fiscal 2026 on July 29, and chief financial officer Amy Hood said that for fiscal 2027, capex will grow year over year due to "demand signals across our portfolio." That clearly indicates that Microsoft does not have sufficient computing power and that there is still strong demand to support major growth.

With Microsoft ramping up its capex plans, Nvidia will be one of the primary beneficiaries. It also gives credence to Nvidia's projection that there will be $1 trillion or more in data center capex from the AI hyperscalers in 2027, up from an estimated $650 billion in 2026.

Despite this bullish outlook, the market hasn't priced any future success into the chipmaker's stock. It now trades for 21.1 times forward earnings, the same valuation as the S&P 500.

Data by YCharts; PE = price to earnings.

So, the market is essentially saying that after this year, Nvidia will be a market-average stock. However, investors have information from companies like Microsoft indicating that data center spending will increase due to high demand, which will boost Nvidia's sales.

Wall Street analysts also project 42% revenue growth during fiscal 2028 (ending January 2028), indicating huge growth again next year. Clearly, Nvidia will be a monster stock next year, so if you can load up on shares for a cheap price tag like you can right now, it makes a ton of sense to do so.

There are few better bargains in the market right now. Nvidia's next major catalyst is its second-quarter earnings report on Aug. 26, and getting into the stock before that date would be a smart move.

Keithen Drury has positions in Microsoft and Nvidia. The Motley Fool has positions in and recommends Microsoft and Nvidia. The Motley Fool has a disclosure policy.