High-flying Nvidia’s earnings could test US stock market’s AI dreams

By David Randall and Saqib Iqbal Ahmed

NEW YORK (Reuters) – Next week’s earnings report from chipmaker Nvidia could prove a gut check for one of the market’s hottest names, and for the artificial intelligence fever that has helped power gains for U.S. stocks in recent months.

Excitement over the business potential of AI has boosted Nvidia’s shares by more than 46% since Jan. 1. Its $570 billion increase in market capitalization is more than triple the market value of Intel. Shares of Nvidia, whose chips are considered the gold standard in the AI industry, surged nearly 240% in 2023.

The chipmaker’s gains have accounted for more than a quarter of the S&P 500’s increase this year. The benchmark index is up nearly 5% year-to-date, after optimism about AI helped drive the index up 24% in 2023.

Now the third most valuable company on Wall Street after Apple and Microsoft, Nvidia has also become a bellwether for the artificial intelligence industry. Other AI-focused stocks have surged this year, including Super Micro Computer Inc, which is up 182% year-to-date, and Arm Holdings, up nearly 71%.

“When people say that the market is doing well this year, they really mean that tech is doing well, and Nvidia is at the core of that,” said Keith Lerner, chief market strategist at Truist Advisory Services. “There is excitement within AI and if that optimism is not fulfilled by earnings then you could see that reverberate quickly and weigh on sentiment.”

Nvidia will release quarterly earnings results on Feb. 21. Wall Street expects earnings of $4.56 a share, and a rise in quarterly revenue to $20.378 billion from $6.05 billion a year ago, according to the mean estimate from 33 analysts, based on LSEG data.

Given the company’s size and its importance to the AI story, Nvidia’s results could be pivotal for market sentiment, said Kevin Landis, a portfolio manager at Firsthand Capital.

“Every time you get a big stock market rally there’s a favorite stock that leads it,” said…