Will Nvidia’s Earnings Results Steer Tech Stock Direction?

As the second quarter earnings reporting season winds down, the markets are eagerly awaiting the earning results from Nvidia (NVDA) later today.  Those results and the company’s commentary on artificial intelligence (AI) have the potential to set the tone for tech stocks and even the broader stock market.  Shares of Nvidia rallied to a record high Tuesday and have more than tripled this year, making it the biggest contributor to the +36% rally in the Nasdaq 100 Stock Index ($IUXX) (QQQ) this year. 

The rally in Nvidia has helped fuel the sharp rally in the Nasdaq 100 this year, making today’s earnings report more significant than a typical technology company’s earnings release. Investors and analysts will key on any forward guidance that Nvidia gives with its earnings to judge if the AI craze has led to a jump in demand for its chips.  Melius Research said, “What Nvidia says about guidance for the remainder of fiscal 2024 drives the sentiment around the entire AI thesis that has driven the market.”

Ahead of today’s Q2 earnings report from Nvidia, analysts have been raising the price target for the stock.  The average price target for Nvidia is now above $520, up from $505 just a week ago. BMO Capital Markets, KeyBank Capital Markets, and HSBC are among the latest firms to boost their price targets for Nvidia.  According to Bloomberg data, Nvidia’s Q2 revenue is expected to rise +65% y/y to about $11 billion.  The whisper number is even higher, at around $12 billion.

Any market movement and reaction from Nvidia’s Q2 earnings results has the potential to move the entire stock market.  Stocks linked to AI, such as Alphabet (GOOGL), Microsoft (MSFT), and Palantir Technologies (PLTR), will see the biggest impact from Nvidia’s earnings results.  The report could also move stocks like Nvidia supplier Taiwan Semiconductor Manufacturing (TSM) and chip equipment maker ASML Holding NV (ASML).  HSBC said the long-term earnings potential still isn’t reflected by Nvidia’s stock price, and “Although market expectations have clearly risen for Nvidia and the overall supply chain, we expect bullish AI server momentum to continue to surpass market expectations.” 

With expectations so high, a disappointing earnings report from Nvidia would definitely weigh on the overall stock market.  Trivariate Research said, “If they miss, the entire stock market’s gonna go down, no question.”  A potential headwind could be chip supply.  Some analysts have warned that Nvidia’s sales might be limited by the company’s ability to secure enough chips from Taiwan Semiconductor.  Also, Morgan Stanley cautions that souring sentiment about the macroeconomic backdrop means that even blowout results from Nvidia may not be enough to propel markets higher this time.   

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.