The Wall Street Keeps a Lid on Nvidia's Stocks

Stocks have been struggling to gain momentum as traders eagerly await Nvidia Corp.’s earnings report, hoping it will provide insights into whether the current enthusiasm for artificial intelligence (AI) is overblown or will continue to drive market gains.

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Investors are keenly watching to see if Nvidia can meet Wall Street’s high expectations. The chipmaker, which has nearly doubled in value this year, has significantly influenced broader market indexes. A major trading desk has even dubbed Nvidia "the most important stock on planet Earth." Nvidia's performance has been responsible for one-third of the Nasdaq 100’s rally this year.

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Chris Senyek of Wolfe Research emphasized Nvidia’s critical role in the market, noting that as long as it meets analyst expectations, it will remain a key driver for the overall U.S. stock market.

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The S&P 500 has been fluctuating, having recently hit its 24th record high this year. Mega-cap stocks showed mixed results, with Nvidia declining and Microsoft rising. Homebuilders fell following weak housing data, and Target Corp. dropped due to cautious outlooks on discretionary spending.

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Treasuries saw minor movements ahead of the release of the Federal Reserve’s latest policy meeting minutes and a $16 billion sale of 20-year bonds. U.S. 10-year yields remained relatively unchanged at 4.4%.

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The dollar strengthened, reducing the appeal of commodities priced in the currency. Consequently, oil, gold, and copper prices fell. Meanwhile, the pound rose as strong UK inflation data led traders to scale back expectations for rate cuts.

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Despite a recent trend of investor caution between major announcements, Matt Maley of Miller Tabak + Co. suggested this could change soon. He believes that if Nvidia’s earnings or other significant events push indices higher, it could trigger another wave of "fear of missing out" (FOMO).

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Maley noted that some institutional investors have been cautious due to high valuations, waiting to see if big announcements would disrupt the market. However, they also recognize that the market has often become more expensive before peaking in the past. If the market significantly surpasses its March highs, these investors may need to increase their buying to avoid being left behind in their 2024 performance.

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Options markets, as of Friday’s close, were pricing in an 8.6% swing for Nvidia post-earnings, which could single-handedly move the S&P 500 by 0.4%, based on Citigroup Inc. data. This would be the fourth-largest impact from a single earnings event in the past 12 years. However, this expected move is modest compared to Nvidia’s previous earnings swings of 16% and 24%.

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The high expectations for Nvidia follow its nearly 550% surge since early 2023. As the third most valuable tech company after Microsoft and Apple, Nvidia is expected to report a 243% increase in sales for the last quarter. The company’s rapid revenue growth means it now makes nearly as much in a quarter as it did annually just two years ago.

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Nvidia’s sales have soared, particularly in its data-center division, driven by the AI boom. Despite concerns about a potential slowdown ahead of the new Blackwell chip launch, analysts like Tom O’Malley of Barclays believe these worries are exaggerated.

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Nvidia has accounted for about a quarter of the S&P 500’s gains this year and has boosted global tech sentiment. An index tracking the biggest U.S. tech stocks is at a record high, thanks to earnings from companies like Microsoft, Alphabet, and Amazon, which have shown strong demand for AI services.

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Solita Marcelli of UBS Global Wealth Management remains positive on the AI trend, favoring big tech due to their strong market positions. She forecasts global tech earnings growth of 20% and 16% for this year and next, respectively, led by the semiconductor sector.

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As Nvidia’s earnings approach, market watchers are monitoring key technical levels and options market activity to determine the future direction of one of the S&P 500’s best-performing stocks in 2024. Jay Woods of Freedom Capital Markets highlighted resistance just above $950 as a crucial area to watch, noting Nvidia’s significant impact on the semiconductor industry and the broader market.

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Goldman Sachs Group Inc. reported that hedge funds have been trimming their positions in mega-cap tech stocks, including Nvidia, while betting on a broader array of firms poised to benefit from AI. Despite high risks of market pullbacks, Goldman Sachs strategists, led by Cecilia Mariotti, believe that strong economic growth and expected rate cuts will keep investor sentiment and stock positioning bullish.

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