Nvidia, the leading chipmaker in the artificial intelligence (AI) industry, is set to release its earnings report next week, which could have significant implications for both the company and the broader market. The excitement surrounding the potential of AI has propelled Nvidia’s shares up by over 46% since the beginning of the year, contributing to its staggering $570 billion increase in market capitalization, surpassing even Intel. In 2023 alone, Nvidia’s shares surged by nearly 240%, making it one of the primary drivers behind the S&P 500’s overall increase of 24% that year.
As the third most valuable company on Wall Street, Nvidia has become a crucial indicator for the AI industry as a whole. This year, other AI-focused stocks, such as Super Micro Computer Inc and Arm Holdings, have also experienced significant gains, with increases of 182% and 71% respectively. Keith Lerner, chief market strategist at Truist Advisory Services, emphasizes Nvidia’s central role in the tech sector’s success, stating, “When people say that the market is doing well this year, they really mean that tech is doing well, and Nvidia is at the core of that.”
The upcoming earnings report from Nvidia is highly anticipated and could potentially shape market sentiment. Analysts are expecting earnings of $4.56 per share and a rise in quarterly revenue to $20.378 billion compared to $6.05 billion in the previous year. Kevin Landis, a portfolio manager at Firsthand Capital, highlights the significance of Nvidia’s performance for the overall market, stating, “Every time you get a big stock market rally there’s a favorite stock that leads it… It’s hard not to look at Nvidia and see … that’s driving the psychology of the overall market.”
Traders are preparing for substantial movements in Nvidia’s shares following the earnings report. Options traders have priced in an expected swing of about 11% in either direction, which is the largest anticipated move in the past three years. Tom Hainlin, senior investment strategist at U.S. Bank Wealth Management, suggests that positive updates to Nvidia’s corporate outlook could fuel further optimism in the AI sector and extend the market rally. Conversely, a disappointing report could prompt investors to take profits.
Ryuta Makino, a research analyst at Gabelli Funds, believes that investor enthusiasm for Nvidia is so high that even meeting expectations without exceeding them could result in a significant drop in the company’s shares, potentially as much as 10%. However, Makino remains bullish on Nvidia due to increased capital expenditures from major customers like Amazon.com and Microsoft, who heavily rely on Nvidia’s chips for their cloud businesses.
A less-than-stellar report from Nvidia could also raise concerns about overcrowding in the market’s largest stocks. Michael Purves, head of Tallbacken Capital Advisors, warns that investors currently have their highest allocation to the tech sector since August 2020. He cautions, “This is the pillar of growth for the index today, but at some point the gas tank will go empty.”
In conclusion, Nvidia’s upcoming earnings report has the potential to test both the market’s sentiment and the fever surrounding artificial intelligence. As a key player in the AI industry and one of the primary drivers behind the tech sector’s success, Nvidia’s performance will be closely watched by investors. Positive results could further fuel optimism in the AI sector and extend the market rally, while a disappointing report may prompt investors to take profits. The outcome of Nvidia’s earnings report will undoubtedly have a significant impact on market sentiment and could potentially shape the future trajectory of the AI industry.