This week’s earnings report from chipmaker Nvidia (NVDA-Q) could prove a gut check for one of the market’s hottest names, and for the artificial intelligence fever that has helped power gains for U.S. stocks in recent months.
Excitement over the business potential of AI has boosted Nvidia’s shares by more than 46% since Jan. 1. Its $570 billion increase in market capitalization is more than triple the market value of Intel (INTC-Q). Shares of Nvidia, whose chips are considered the gold standard in the AI industry, surged nearly 240% in 2023.
The chipmaker’s gains have accounted for more than a quarter of the S&P 500′s increase this year. The benchmark index is up nearly 5% year-to-date, after optimism about AI helped drive the index up 24% in 2023.
Now the third most valuable company on Wall Street after Apple (AAPL-Q) and Microsoft (MSFT-Q), Nvidia has also become a bellwether for the artificial intelligence industry. Other AI-focused stocks have surged this year, including Super Micro Computer Inc (SMCI-Q), which is up 182% year-to-date, and Arm Holdings (ARM-Q), up nearly 71%.
“When people say that the market is doing well this year, they really mean that tech is doing well, and Nvidia is at the core of that,” said Keith Lerner, chief market strategist at Truist Advisory Services. “There is excitement within AI and if that optimism is not fulfilled by earnings then you could see that reverberate quickly and weigh on sentiment.”
Nvidia will release quarterly earnings results on Feb. 21. Wall Street expects earnings of $4.56 a share, and a rise in quarterly revenue to $20.378 billion from $6.05 billion a year ago, according to the mean estimate from 33 analysts, based on LSEG data.
Given the company’s size and its importance to the AI story, Nvidia’s results could be pivotal for market sentiment, said Kevin Landis, a portfolio manager at Firsthand Capital.
“Every time you get a big stock market rally there’s a favorite stock that leads it,” said Landis, who regrets selling his shares in Nvidia last year. “It’s hard not to look at Nvidia and see … that’s driving the psychology of the overall market.”
Not surprisingly, traders are bracing for big moves in the company’s shares. Nvidia options are pricing a swing of about 11% in either direction following its results, according to data from options analytics service ORATS.
That’s the largest expected move options traders have priced ahead of Nvidia’s earnings over the last three years and well above the stock’s average earnings move of 6.7% over that period, ORATS data showed.
Tom Hainlin, senior investment strategist at U.S. Bank Wealth Management, said positive updates to Nvidia’s corporate outlook could fuel more AI optimism and extend a market rally that has been concentrated in the so-called Magnificent Seven group of megacap stocks, of which Nvidia is a member.
Shares of Meta Platforms (META-Q), another member of the group, have surged 34% this year while Apple’s have fallen by 5%. Shares of Tesla (TSLA-Q) have tumbled nearly 20% after the electric car maker warned of “notably lower” sales growth this year and shrinking margins.
“Right now investors are rewarding visibility into earnings growth and that keys up well for more gains for Nvidia,” Hainlin said.
On the other hand, investors may use a less-than-stellar report as an opportunity to take profits.
Ryuta Makino, research analyst at Gabelli Funds, believes investor enthusiasm for Nvidia is so high that its shares could fall by at least 10% if the company simply meets expectations, without exceeding them.
He remains bullish on Nvidia due to rising capital expenditures from customers such as Amazon.com and Microsoft into their cloud businesses, which rely on the company’s chips.
A disappointing report from Nvidia could also exacerbate concerns over crowding in the market’s largest stocks, said Michael Purves, head of Tallbacken Capital Advisors.
Overall, investors have their highest allocation to the tech sector since August 2020, according to fund managers in the latest survey conducted by BofA Global Research.
“This is the pillar of the growth for the index today, but at some point the gas tank will go empty,” Purves said.
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TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
