Nvidia’s earnings report next week will be closely watched for signs of whether the AI-driven investment trend is still intact. The company, a bellwether for the AI industry, has seen its shares skyrocket 550% over two years but recently lost 17% on January 27 after Chinese startup DeepSeek unveiled a lower-cost AI model.
Despite this stumble, Nvidia’s shares have largely recovered and the company says DeepSeek’s advances prove the need for more of its chips. However, investors are still apprehensive about earnings, which could revive market turbulence.
The options market implies a significant swing in Nvidia’s shares, with a 7.7% move possible either way. This translates to a potential market value swing of $260 billion, roughly the size of Wells Fargo. The guidance Nvidia provides for chip supply and demand will be key to justifying its rich valuation and sector outlook.
Nvidia is expected to post fourth-quarter profit of $20.89 billion, driven by a 72% rise in revenues from last year. With markets having changed since the recent selloff triggered by DeepSeek, investors are watching for signs that Nvidia can continue to drive the market forward.
The correlation between Nvidia and the S&P 500 has fallen to 30%, down from 71% last year. However, this does not mean stocks are bulletproof if Nvidia disappoints. Investors will also be watching next week’s release of U.S. inflation numbers for January, which could prompt a delayed cut in interest rates if hotter-than-expected data is reported.
Source: https://www.reuters.com/markets/us/wall-st-week-ahead-nvidia-offer-ai-trades-reality-check-2025-02-21