New York – The U.S. stock market has been on a remarkable rally, reaching new highs and showing resilience in the face of economic concerns. However, this impressive performance will face a crucial test with the upcoming earnings report from chipmaking giant Nvidia.
Nvidia, known for its cutting-edge chips in artificial intelligence, has been a major driving force behind the market’s success in 2024. Its stock has soared by over 30% since its recent lows and has contributed to a quarter of the S&P 500’s year-to-date gain of 17%. With such a significant impact, the company’s earnings report on August 28th will be a key moment for market sentiment, especially as we enter the historically volatile month of September.
According to data from CFRA, the S&P 500 has shown an average decline of 0.78% in September since World War Two, making it the worst-performing month. This makes Nvidia’s earnings report even more critical, as it could set the tone for market performance in the coming weeks.
“Nvidia is the talk of the town in the stock market right now,” says Mike Smith, a portfolio manager at Allspring Global Investments, which holds shares of the company. “Their quarterly earnings are like the Super Bowl for investors.”
Investors are already gearing up for the big event, with options analytic firm ORATS reporting a projected 10.3% swing in Nvidia’s stock the day after the earnings report. This is higher than the expected movement for any of Nvidia’s previous reports in the last three years, which averaged at 8.1%. It shows that investors are anticipating significant changes in the stock’s value, and the results could have a significant impact on the market.
Nvidia’s earnings report comes at the end of a season where investors have been less forgiving towards big tech companies that failed to justify their high valuations or excessive spending on AI. Microsoft, Tesla, and Alphabet are just a few examples of companies whose shares have declined since their July reports. Nvidia’s valuations have also climbed, with its stock soaring by 750% since the start of 2023. This has drawn comparisons to the dotcom bubble of the early 2000s and raised concerns about the company’s sustainability.
According to LSEG Datastream, Nvidia’s shares currently trade at 37 times forward 12-month earnings estimates, which is higher than the 20-year average of 29 times. This further highlights the importance of the upcoming earnings report, as it will provide insight into the company’s future growth and potential.
Investor sentiment will not only be affected by Nvidia’s financial results but also by its guidance for the future. Matt Stucky, chief portfolio manager for equities at Northwestern Mutual Wealth Management, believes that evidence of robust demand for AI will be a bullish sign that companies are continuing to invest, rather than pulling back in anticipation of an economic slowdown. He states, “Nvidia’s connection to the largest companies in the U.S. stock market makes this a must-watch event. Investors are eager to know about the sustainability and demand for AI in the coming years.”
The trajectory of monetary policy and the state of the U.S. economy also loom large for investors. In a recent speech in Jackson Hole, Wyoming, Federal Reserve Chair Jerome Powell endorsed further interest rate cuts, stating that a cooling job market would be unwelcome. The upcoming U.S. labor market data on September 6th will be closely watched, as any signs of continued weakness could reignite recession fears that shook the market earlier this month.
Moreover, the tight presidential race between Vice President Kamala Harris and former President Donald Trump could also add to market uncertainty in the weeks ahead. With so many factors at play, the August surge in stocks may make it challenging for the market to make significant gains in the near future, even if Nvidia’s earnings report impresses Wall Street.
John Belton, a portfolio manager at Gabelli Funds, which holds shares of Nvidia, believes that the market is still trading at stretched valuations, with the S&P 500 currently at 21 times expected earnings. This is significantly higher than its long-term average of 15.7. He says, “The stock market as a whole is still trading at high valuations, so the bar remains high for companies like Nvidia.”
In conclusion, the upcoming earnings report from Nvidia will be a critical moment for the U.S. stock market, with its impact
