As the AI sector braces for Nvidia Corp (NASDAQ:NVDA, XETRA:NVD)'s quarterly results on Wednesday, market eyes are fixated on the chipmaker that has become the backbone of the artificial intelligence revolution.
Analysts expect a blockbuster quarter, with revenues forecast to hit $55.19 billion, a 57% increase year-over-year, and net income projected at $30.85 billion, up 55% from a year ago.
Nvidia’s influence is so significant that, as Kathleen Brooks, research director at XTB, notes, the results are “the macro event of the quarter.”
Why Nvidia’s revenues can keep rolling
Nvidia’s earnings strength comes from its pivotal role in AI development. Its GPUs and chips are critical to the sector, with major customers including Microsoft, Meta, Amazon, Alphabet, and Super Micro Computers.
Brooks emphasizes that the company’s relationships with these hyperscalers provide a predictable revenue base: “Since Microsoft has pledged to spend $120 billion on AI next year, and Meta has pledged $100 billion, a chunk of this money, some $90 billion in 2026, could be heading to Nvidia, which gives analysts confidence that the revenues can keep rolling in.”
Can Nvidia’s results rescue the AI trade?
The AI trade has faltered in recent weeks, and Nvidia is not immune. Its share price has fallen more than 4% over the past five days, testing its 50-day moving average. Investor sentiment has shifted as some large shareholders, including Softbank and Peter Thiel’s fund, have sold stakes, prompting questions about whether Nvidia can reinvigorate the broader AI market.
As Brooks notes, the wider AI trade has also come under pressure. “The iShares Future AI and Tech ETF is lower by more than 10% since peaking at the end of October. Also, the Magnificent 7 group of mega-cap tech stocks has breached its 50-day SMA and is back at its lowest level for a month.”
History of post-earnings volatility
Investors should be prepared for turbulence even if Nvidia reports stellar results. Historically, the stock has often declined after earnings announcements, reflecting a “buy the rumor, sell the fact” pattern. Brooks points out that in three of the last five quarters, Nvidia’s share price fell post-earnings, even when results exceeded expectations. For example, after the January earnings report, the stock plunged 8.4% despite a 6% increase in EPS.
This history suggests that while the upcoming earnings report is expected to impress, market reactions may remain unpredictable.
Sorting the hype from reality
The recent tech sell-off has raised questions about whether excessive AI hype, such as OpenAI’s $1 trillion pledge to expand AI infrastructure, is dragging valuations lower. Brooks observes that Nvidia, in contrast, has largely avoided reckless spending. “Although Nvidia has made some ‘circular’ investments in companies that will buy Nvidia-made chips, this has been a tiny fraction of the company’s overall balance sheet… Nvidia will be considered part of the [safe and reasonable] group, and any share price weakness on the back of this earnings report could be used as an attractive buying opportunity,” Brooks said.
Looking ahead
Nvidia’s earnings have a reputation as a litmus test for the AI trade. With record revenues anticipated, strong margins, and robust future guidance, the company is poised to reinforce its reputation as the engine of the AI revolution. Even if short-term volatility persists, analysts see Nvidia as a reliable cash and revenue-generating machine that could emerge from any market turbulence stronger than before.