It’s difficult to think of another company report that had the potential to have a more profound impact on the global equity market than Nvidia’s results due tomorrow.
Nvidia’s earnings are a direct barometer of the ongoing artificial intelligence boom, and its prominent position in the S&P 500 in terms of market cap means any volatility in NVDA shares tomorrow could send waves through global stocks.
After a 162% rally in 2024, Nvidia single-handedly has the potential to send global equities into the stratosphere tomorrow or bring them crashing back down to earth. Over five years, NVDA shares are over 2,900% higher.
Expectations are high going into tomorrow’s earnings results. And they have been for the last couple of quarters.
Nvidia is expected to report EPS of $0.65 and revenue of $28.7 billion, which would represent a 113% increase in revenue compared to the same period a year ago.
Market participants will be mindful that the rally after the flash crash early in August has taken Nvidia and other technology shares back to frothy valuations on an earnings basis.
Markets seem happy with Nvidia trading at 40x, 50x, and even 60x historical earnings, with the promise of higher earnings on the horizon. Investors’ focus tomorrow will almost exclusively be on the outlook and whether forward multiples are justified.
Should tomorrow’s report so much as hint at a slowdown in growth or show momentum is flattening out, it could be a blood bath for Nvidia, US tech, and the broader global equity complex.
“The focus of this report will be less on the past quarter and more on the outlook, including how Nvidia will address the issues it’s facing,” said Sam North, Market Analyst at investment platform eToro.
The ramifications for other technology shares are huge. Nvidia’s supply chain includes many other global chip makers, and their results will directly affect the health of their peers.
In addition, the demand for chips and the ability to supply them will highlight the world’s appetite for AI and make the billions and billions being invested by the likes of Meta, Tesla, Google, and Microsoft look like a good idea or not.
The volatility in NVDA shares immediately after earnings releases highlights Nvidia’s role in the world’s adoption of AI.
“Over the past eight quarters, Nvidia shares have closed higher six times. As we approach the upcoming release on Wednesday, options are pricing in a potential move of +/-10%, which aligns closely with the average move of 9% over the last eight quarters,” Sam North explained.
“Historically, Nvidia has averaged a 7.9% move in the week following its earnings report. While this doesn’t guarantee a positive outcome this time around, with shares trading just below their all-time highs, it’s not out of the question to anticipate a new record price if the company surpasses expectations again.”