Artificial intelligence darling Nvidia's upcoming earnings report could be a boost or a drag on a market already mired in the summer doldrums.
Analysts expect the chipmaker to post second-quarter profit of $2.09 a share and revenue of about $11.2 billion after the closing bell on Wednesday, according to Refinitiv.
What's happening? Nvidia shares have been on a tear this year as the popularity of artificial intelligence has surged. The company produces chips that power generative AI, the type of artificial intelligence capable of creating new content including text, images and other media — and which forms the foundation of ChatGPT and several other buzzy AI services.
When Nvidia reported first-quarter results, its earnings and sales shattered expectations. Chief executive officer Jensen Huang said during the post-earnings conference call in May that the company is ramping up its supply to meet "surging demand."
An upbeat earnings report from Nvidia could help lift the broader market, says Phillip Toews, chief executive officer at Toews Asset Management.
That's because Nvidia is the poster child of the AI enthusiasm that's helped power stocks into a bull market, even as the US Federal Reserve has continued to hike interest rates in its battle against inflation.
Shares of Nvidia have surged an eye-popping 212% this year, leading the gains in the "Magnificent Seven" stocks — which also includes Alphabet, Amazon, Apple, Meta, Microsoft and Tesla. Nvidia reached a $1 trillion market cap in May, becoming the ninth company to achieve that milestone.
Tech stocks rose on Monday, indicating optimism among investors about Nvidia's earnings. The tech-heavy Nasdaq Composite index gained 1.6%, marking its biggest one-day jump this month and stalling the recent sell-off in tech stocks.
"Expectations for the high values of tech to run out of gas after the blistering first half, and the rest of the market to see a partial catchup ... has yet to occur," wrote Louis Navellier, chairman of Navellier & Associates, in a Tuesday note.
Can the tech rally last? Tech stocks faltered somewhat on Tuesday, as weak retail earnings and elevated Treasury yields put pressure on stocks. Investors tend to favor bonds when yields are attractively high.
Still, the Nasdaq Composite was the only major index to finish Tuesday's trading session positive, albeit by a small margin. Nvidia shares have risen roughly 5% so far this week, Tesla 8%, Meta 2% and Apple 2%.
"We expect a bullish outlook from Nvidia that should be the fuel in the engine to continue this tech rally into the rest of the year," wrote Dan Ives, tech analyst at Wedbush Securities, in a note on Monday.
But any weakness in Nvidia's earnings could send its shares and other tech names lower.
Nvidia's quarterly results aren't the only risk to markets this week.
Federal Reserve Chair Jerome Powell will deliver a speech at the Kansas City Fed's annual economic symposium in Jackson Hole, Wyoming, on Friday. Last year, his reiteration of the Fed's commitment to tamping down inflation sent the Dow Jones Industrial Average index plummeting 1,000 points.
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