In August 2023, the U.S. Federal Reserve decided to keep interest rates steady at a 23-year high of 5.33%. With inflation slowing down and the unemployment rate slightly rising, many believe that the Fed will cut interest rates in its upcoming meeting on September 17-18.
Typically, falling interest rates are good news for the stock market—more on that later—but because a rate cut in September is already widely expected, it might not have a big impact. Instead, investors should keep their eyes on August 28, the day Nvidia is set to release its earnings report for the second quarter of its fiscal year 2025, which ended on July 31.
Nvidia’s stock has seen a remarkable 187% increase over the past year, driven by the company’s strong financial performance. For those interested in trading the news, resources like the Trading Academy can equip you with the skills to capitalize on such earnings reports and market-moving events.
Here’s why this upcoming earnings report could significantly influence investor sentiment, possibly even more than the Fed’s decisions.
Source : https://nvidianews.nvidia.com/multimedia/santa-clara-headquarters#gallery-2
Nvidia’s Key Role in the AI Industry
Nvidia is a major player in the technology world, particularly in artificial intelligence (AI). The company designs some of the most advanced chips used in data centers, which are essential for developing and running AI models. The demand for these chips is extremely high and continues to grow, driven by a broad range of customers, from established tech giants to emerging startups.
Data center operators are expected to invest heavily in upgrading and expanding their infrastructure over the next few years, with estimates suggesting this could total around $1 trillion. These operators build data centers and fill them with Nvidia’s GPUs, which they then rent out to businesses and developers who need the computing power to create and deploy AI applications.
The profitability of this business model is significant; for every dollar spent on Nvidia’s chips, data centers could potentially generate five dollars in revenue over a few years. In 2023, Nvidia held a dominant market share of over 90%, positioning it to capture a significant portion of that $1 trillion investment, as long as competitors don’t catch up too quickly.
What to Expect from Nvidia’s Upcoming Earnings Report
Nvidia has guided that it expects to report $28 billion in total revenue for its fiscal 2025 second quarter. This is higher than the $26.6 billion originally anticipated by Wall Street analysts, who have since revised their estimates to $28.5 billion. Even with this revision, Nvidia’s guidance might still be conservative.
Nvidia has a history of exceeding expectations. In its fiscal 2025 first quarter, the company reported $26 billion in total revenue, surpassing its initial guidance of $24 billion and Wall Street’s estimate of $24.6 billion.
The standout figure in that report was the $22.6 billion in revenue from data centers, which represented an impressive 427% increase compared to the same period the previous year.
As Nvidia prepares to release its Q2 earnings, investors should pay close attention to the data center revenue. Any figure that surpasses Wall Street’s estimate of $25 billion will be a strong indicator of continued investment in AI infrastructure by major technology companies. This would also reflect their confidence in AI technology moving forward.
Given that Nvidia and other major tech companies make up a significant portion of the S&P 500 index, the performance of these companies can have a major influence on the direction of the overall stock market. This is why Nvidia’s August 28 earnings report is so critical.
Why Nvidia Could Matter More Than the Fed in the Coming Weeks
Lower interest rates generally boost the stock market because they make safer investments like cash and Treasuries less attractive, pushing investors towards higher-risk assets like stocks and real estate. Additionally, lower rates make it easier and cheaper for companies to borrow money for growth, and they reduce the cost of repaying existing debt, which can improve corporate earnings.
However, history shows that the S&P 500 could still experience a temporary decline when the Fed starts cutting interest rates. In past instances—such as the tech crash in 2000, the global financial crisis in 2008, and the COVID-19 pandemic in 2020—the Fed cut rates during tough economic times, leading to a drop in the S&P 500.
That said, a September rate cut is widely expected and, given the current strength of the economy, is unlikely to trigger a negative market reaction.
For these reasons, Nvidia’s upcoming earnings report on August 28 could have a more significant impact on the market’s direction than the Fed’s actions in the weeks to come.
