Nvidia’s Upcoming Earnings Report: A Test for the AI Hype and the Market’s Hottest Name
Next week, chipmaker Nvidia is set to release its earnings report, and it could potentially be a major reality check for both the AI industry and one of the hottest names in the market. Nvidia has witnessed one of the most impressive rallies this year, with its shares surging more than 46% since the start of 2023. This surge has driven its market capitalization to $570 billion, which is triple the value of Intel.
The market’s enthusiasm for artificial intelligence and its potential business applications has been a significant driving force behind Nvidia’s gains. Nvidia’s chips are considered the gold standard in the AI industry, and as such, the company has established itself as a bellwether for the AI sector. Other AI-focused stocks, such as Super Micro Computer and Arm Holdings, have also experienced substantial gains this year.
Nvidia’s success has contributed significantly to the S&P 500’s increase this year, accounting for more than a quarter of the index’s overall growth. These gains have been propelled by the optimism surrounding AI, which led the S&P 500 to rise by 24% in 2023. Currently, Nvidia is the third most valuable company on Wall Street, trailing only Apple and Microsoft.
The significance of Nvidia’s earnings report cannot be overstated. As Kevin Landis, a portfolio manager at Firsthand Capital, puts it, “Every time you get a big stock market rally, there’s a favorite stock that leads it.” Nvidia, with its strong performance and influence on market psychology, has become that favorite stock. Therefore, the outcome of its earnings report could have a substantial impact on market sentiment.
Analysts predict that Nvidia will report earnings of $4.56 per share and a rise in quarterly revenue from $6.05 billion to $20.378 billion when compared to the previous year. Given the company’s size and importance to the AI industry, these results could be pivotal for the market as a whole.
Traders are anticipating significant moves 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 expected move over the past three years. This level of volatility is well above the stock’s average earnings move of 6.7% during the same period.
Positive updates to Nvidia’s corporate outlook could fuel further optimism surrounding AI and extend the market rally, especially in the tech sector. On the contrary, a lackluster report may provide investors with an opportunity to take profits and lead to a market correction.
Ryuta Makino, a research analyst at Gabelli Funds, believes that the high level of investor enthusiasm for Nvidia could potentially result in a 10% drop in the company’s shares even if it merely meets expectations without exceeding them. However, Makino remains bullish on Nvidia due to increased capital expenditures from major customers like Amazon and Microsoft in their cloud businesses, which heavily rely on Nvidia’s chips.
A disappointing earnings report from Nvidia could also exacerbate concerns about market crowding in the largest stocks. Investors currently have their highest allocation to the tech sector since August 2020, according to a survey conducted by BofA Global Research. Michael Purves, the head of Tallbacken Capital Advisors, warned that while tech stocks are currently driving growth, there will come a point where the fuel runs out.
In conclusion, Nvidia’s upcoming earnings report carries significant implications for the market, the AI industry, and investor sentiment. Whether Nvidia delivers robust results or falls short of expectations, the outcome will undoubtedly impact the trajectory of the market’s hottest name and the AI fever that has propelled U.S. stocks in recent months.
Disclaimer: This article is for informational purposes only and does not constitute financial advice.
