Investors eye earnings from AI darling Nvidia as US stocks fluctuate

NEW YORK (Reuters) – Bullish investors hope Wednesday’s earnings report from chip heavyweight Nvidia (NVDA.O) will renew a rally in US stocks that has faltered in recent weeks.

Nvidia shares have tripled in 2023, underscoring how a boom in stocks and excitement about the commercial potential of artificial intelligence has helped propel the S&P 500 (.SPX) to a 14% gain this year.

The chipmaker’s year-to-date increase led to gains among the so-called Magnificent Seven group of large stocks, which also includes Apple (AAPL.O) and Microsoft (MSFT.O). The group’s collective ascent was responsible for nearly two-thirds of the increase in the S&P 500 during the month of July.

However, the broader rally in equities has stalled recently, with the benchmark down more than 4% in August, as rising Treasury yields threaten to dampen the appeal of stocks. Market turmoil intensifies focus on Nvidia’s fiscal second-quarter report, due after the market closes on Wednesday.

Nvidia is at the center of “two big issues that are worrying the market right now: Can Big Tech continue to lead the market, and is this AI story real?” said Anthony Saglimbene, chief market strategist at Ameriprise Financial, which weighs a little more in the technology sector.

“Small good news in a stock that has been such an important market driver can change sentiment,” he said.

Nvidia stunned the market with its previous report in May, when an excellent outlook sent its shares up 24% in one day. After this report, the technology sector in the Standard & Poor’s 500 Index (.SPLRCT) rose by 8% over the next five days.

The company’s gains were driven by its position as a beneficiary of the rise of ChatGPT and other AI applications, nearly all of which are powered by its own graphics processors.

In one sign of the market’s overall boost to AI, a Societe Generale analysis that focused on 20 stocks widely owned by AI-related exchange-traded funds found that removing those stocks from the S&P 500 would underperform the index. by about 13 percentage points, leaving it in the doldrums. Just marginal gains for this year.

Some investors may already be betting on repeated strong performance: Nvidia shares have jumped nearly 12% since the start of last week, hitting an all-time high on Tuesday before retreating. However, such a stock buildup could make it difficult for the company to outperform investors’ expectations in its report released on Wednesday.

“I think the numbers will be good, but will they be enough?” “If not, you could see a continuation of the sell-off that we’ve seen here in the last month or so,” said Chuck Carlson, CEO of Horizon Investment Services.

Options at Nvidia imply a stock swing of roughly 11%, in either direction, by Friday, according to Trade Alert data. That compares to the average move of 8.6% that the stock posted the day after the chipmaker reported results for the past eight quarters.

Nvidia stock has the fifth largest weight in the S&P 500 and Nasdaq 100 indexes, at 3.2% and 4.3% respectively – meaning that movements in its share price have a significant impact on the major indices.

Nvidia’s earnings report isn’t the only closely watched market event in the coming days. Investors will also focus on Federal Reserve Chairman Jerome Powell’s speech at the annual central bank conference in Jackson Hole, Wyoming, later this week.

Signs that the central bank intends to keep interest rates around current levels for longer than investors expected could weigh on stocks further.

However, few people can deny the impact Nvidia and Megacap stocks have had on the broader markets this year.

Nvidia was one of 11 stocks that Goldman Sachs described as near-term beneficiaries of the “artificial intelligence revolution.” In a note on Monday, Goldman analysts said an equal-weighted basket of those 11 stocks has returned 69% so far in 2023, outpacing the 7% gain for the equal-weighted S&P 500 overall.

“Some of these stocks have already seen their 2024 EPS estimates rise on the back of AI adoption, NVDA being a notable example,” the Goldman analysts wrote.

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