Markets Cheered Fed Chair Powell’s Big Speech—How Will They React to Nvidia Earnings?

The market in recent weeks has been gripped by uncertainty about the state of the economy and the outlook for interest rates. Fed Chair Jerome Powell on Friday put much of that uncertainty to bed when he signaled the central bank would begin cutting interest rates at its next meeting in September.

Now, Wall Street turns its attention to Nvidia (NVDA). The artificial intelligence chipmaker will report second-quarter earnings after markets close on Wednesday, and its report comes at a critical time for the AI craze that has propelled markets to record high after record high this year. 

How Nvidia Earnings Could Move Markets

Nvidia, the undisputed star of the AI rally, is the last of the Magnificent Seven to report, and its results could be a big event for markets. 

With a market capitalization of more than $3 trillion, the chipmaker has outsized influence in capitalization-weighted indexes like the S&P 500. As such, the performance of the S&P 500 and Nvidia stock tend to be strongly correlated around its earnings reports, as seen in the graph below from a recent Bank of America Securities note. 

Markets may be on edge heading into Nvidia’s earnings, especially after a string of disappointing reports from its Magnificent Seven peers. Even as most of the group reported strong earnings growth, their stocks stumbled as Wall Street focused on pockets of weakness and expressed concern about surging AI spending. 

Expectations for Nvidia Are High

Nvidia has reported triple-digit-percentage earnings and sales growth in each of the last four quarters and is expected to do so again on Wednesday. And in each of the last six quarters, it has reported better-than-expected earnings per share and revenue, as well as raised its earnings outlook.

What’s more, massive spending on AI infrastructure, including Nvidia chips, has been one of the defining narratives of this past round of corporate earnings. Cloud hyperscalers like Microsoft (MSFT), Amazon (AMZN), and Alphabet (GOOGL) spent more than $50 billion on infrastructure in the second quarter, a more than 50% increase from the same period a year ago.

With Nvidia accounting for an estimated 70% to 95% of the AI chip market, that spending has surely been a boon to the company’s top line. 

Nvidia Stock Hits Turbulence Ahead of Earnings

And yet the stock, along with its Magnificent Seven peers, has run into some resistance in recent months. Shares fell more than 25% through July and early August as investors rotated out of big tech into small-cap stocks that stand to benefit most from imminent interest rate cuts. 

Though the stock has since recovered to trade just 6% off its June all-time high, it continues to exhibit notable volatility. Shares climbed more than 1% at the open on Monday before taking a turn and falling as much as 3.8% about an hour into the session. 

Beyond earnings, the stock and its tech peers also remain vulnerable to sell-offs amid substantial economic and geopolitical uncertainty. The upcoming presidential election and conflicts in the Middle East could compound the seasonal weakness stocks usually experience in September.