Markets turned downward ahead of the eagerly awaited earnings report from Nvidia Corp., the final company among the “Magnificent Seven” megacap stocks to report this cycle. As Nvidia’s shares fell by 2% just hours before the release, investors and analysts are closely monitoring whether the AI chip leader can meet the towering expectations that have surrounded its growth prospects in the artificial intelligence sector—widely regarded as a transformative opportunity in technology.
Market participants are particularly focused on Nvidia’s projected revenue growth, expected by analysts to exceed 70% for the current quarter. Moreover, all eyes are on CEO Jensen Huang’s forecast for AI demand extending into 2025. Nvidia’s dominance in the AI space has driven its market capitalization to an astonishing $3 trillion, making its earnings report potentially market-moving. Options trading indicates a potential 10% swing in the stock’s price following the announcement, underscoring its significant influence.
Quincy Krosby of LPL Financial noted that while the earnings call is likely to affirm strong AI demand, simply meeting expectations might not be sufficient to sustain Nvidia’s lofty share price. “There are concerns about the delay in chip sales due to the advanced Blackwell architecture, which must be addressed,” she said. “Additionally, there are questions about whether companies can monetize their AI investments after spending billions on infrastructure.”
As trading volume thinned, the S&P 500 dipped below 5,600, and the Nasdaq 100 declined by 1%. Notably, Super Micro Computer Inc. plunged over 20% after announcing a delay in filing its annual financial disclosures. United Airlines Holdings Inc. also slipped as flight attendants authorized union leaders to call a strike, pending approval from US labor mediators.
Treasury 10-year yields edged up by two basis points to 3.84%. While market hype often falls short of reality, Nvidia’s importance in the current market landscape is undeniable. According to Bespoke Investment Group, Nvidia’s historical one-day earnings reaction has averaged an 8.1% move, a volatility level surpassed only by stocks like Tesla Inc. and Alphabet Inc.
Matt Maley of Miller Tabak remarked that while this week has been relatively uneventful, Nvidia’s earnings could catalyze significant market movement. “We might see a surge in activity, though that doesn’t necessarily guarantee increased volatility. However, it’s a good bet that investors will be more active on Thursday,” Maley said.
Looking ahead, Solita Marcelli of UBS Global Wealth Management predicts that while gains in global tech stocks may slow following the recent three-week rebound, the broader AI theme remains structurally positive. “Investors can manage their exposure to AI, which we believe will be a significant growth driver in the coming years,” she noted.
Interestingly, Bloomberg Intelligence strategists, led by Gina Martin Adams, observed that the correlation between the S&P 500 and Nvidia has decreased, suggesting that the stock’s influence on overall index earnings growth may be waning. “While AI themes still capture significant attention, their dominance may decline as other sectors and themes gain traction,” they wrote.
Outside the “Magnificent Seven,” the S&P 500 companies more than doubled their growth expectations to 9.2%, compared to the forecasted 4%. Notably, sectors such as industrials, real estate, and staples showed growth rather than declines, with energy being the only sector to fall short.
Options trading reveals that investors are increasingly positioning for gains, particularly after the market’s August dip. The S&P 500’s call skew—a measure of how much traders are willing to pay for bullish exposure—has steepened significantly, reflecting an urgency to secure bullish options in the wake of Federal Reserve Chair Jerome Powell’s dovish comments at the Jackson Hole symposium. According to Nomura’s Charlie McElligott, the market is behaving “like a beach ball you’re trying to hold underwater,” as demand for upside hedging outweighs any lingering risk management from early August’s volatility, leading equity indexes to continue their gradual recovery.
