Wall Street Week Ahead — ‘Super Bowl’ Nvidia earnings stand to test searing AI trade

The rally in U.S. stocks faces an important test […] with earnings from chipmaking giant Nvidia NVDA.O, whose blistering run has powered markets throughout 2024.
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The S&P 500.SPX has pared a sharp drop it suffered after U.S. economic worries contributed to a sell-off at the beginning of the month and again stands near a fresh all-time high.

Nvidia, whose chips are widely seen as the gold standard in artificial intelligence, has been at the forefront of that rally, jumping by more than 30% since its recent lows. The stock is up some 150% year-to-date, accounting for around a quarter of the S&P 500’s 17% year-to-date gain.

The company’s Aug. 28 earnings report, coupled with guidance on whether it expects corporate investments in AI to continue, could be a key inflection point for market sentiment heading into what is historically a volatile time of the year. The S&P 500 has fallen in September by an average of 0.78% since World War Two, the worst performance of any month, according to CFRA data.

“Nvidia is the zeitgeist stock today,” said Mike Smith, a portfolio manager at Wellspring Global Investments, which holds the company’s shares in its portfolios. “You can think of their earnings four times a year as the Super Bowl.”

Some investors are getting ready for fireworks. Traders are pricing in a swing of around 10.3% in Nvidia’s shares the day after the company reports earnings, according to data from options analytic firm ORATS. That’s larger than the expected move ahead of any Nvidia report over the last three years and well above the stock’s average post-earnings move of 8.1% over that same period, ORATS data showed.

The results come at the end of an earnings season during which investors have taken a less forgiving view of big tech companies whose earnings failed to justify rich valuations or prodigious spending on AI. Examples include Microsoft MSFT.O, Tesla TSLA.O, and Alphabet GOOGL.