Nvidia earnings loom as risk factor for AI-obsessed stock…

Nvidia’s earnings report comes at a critical time for the U.S. stock market with investors nervous about the outlook for AI. Read more.

You can save this article by registering for free here. Or sign-in if you have an account. Nvidia Corp.’s earnings report on Wednesday afternoon comes at a critical time for the U.S. stock market with investors increasingly nervous about the outlook for artificial intelligence. While most Wall Street pros are anticipating strong results from the chipmaker amid ballooning spending on computing infrastructure, there is less certainty about how its shares — and others — will respond at a time when fears about AI disruption and the staying power of heavy investments are dominating the tape.

“Even if they have tremendous numbers, we know the markets are really fickle,” said Ken Mahoney, president of Mahoney Asset Management. By signing up you consent to receive the above newsletter from Postmedia Network Inc. A welcome email is on its way. If you don't see it, please check your junk folder. After powering the market higher for much of the past few years, Nvidia shares have gone cold in recent months, rising just 3.4 per cent since the start of the fourth quarter, as investors question the hundreds of billions of dollars customers like Alphabet Inc.

and Microsoft Corp. are spending on AI. Meanwhile, investors have been fleeing sectors seen as potentially under threat from AI disruption. The selloff is weighing on the S&P 500 with shares of members like Intuit Inc., Gartner Inc. and Workday Inc. down more than 39 per cent since the start of the year. A Bloomberg index tracking the Magnificent Seven, which also includes Apple Inc., Amazon.com Inc., Meta Platforms Inc.

and Tesla Inc., is down 5.5 per cent in 2026. Nvidia, however, is still the most valuable company in the world at US$4.7 trillion, giving it enormous sway over the market-cap weighted S&P 500. The index has fallen more than one per cent from a late January peak. Nvidia’s revenue is expected to jump 68 per cent to US$65.9 billion in its fiscal fourth quarter, which ended on Jan. 31. Adjusted earnings are anticipated to rise 72 per cent to US$1.53 a share, according to the average of analyst estimates compiled by Bloomberg.

Another metric investors will be watching closely is gross margin, a measure of profitability that came under pressure last year due to high production costs for Nvidia’s Blackwell chips. The firm’s adjusted gross margin is anticipated to be 75 per cent in the fourth quarter, the highest in more than a year, and is projected to stay around that level in the current fiscal year. Investors want reassurances that such profitability can be sustained amid rising prices for memory chips and other input costs.

“Margins are potentially a risk factor,” said Melissa Otto, head of technology, media and telecommunications research at Visible Alpha. “The question’s going to be around that gross margin coming into Q1 and then if they give any color for the rest of the year.” Otto is also looking for updates on the status of Nvidia’s Blackwell and upcoming Rubin chips. Nvidia chief executive Jensen Huang said in October that the two chip lines were on track to generate half a trillion dollars in revenue over the next several quarters, a milestone the company said it would reach faster than initially expected.

China is also top of mind, even though Nvidia previously said that the fourth quarter won’t include any data centre revenue from the country. Still, investors will be looking for any update about the company’s ability to sell into China after the Trump administration cleared sales of its older H200 chips. “What Nvidia says about their guidance is important, what they say about their overseas sales and what they can sell is going to be really important,” said Luke Rahbari, chief executive officer of Equity Armor Investments.

The options market is pricing in about a 5% swing in either direction for Nvidia shares the day after earnings. The stock has declined the day after each of its last two reports. Beyond the numbers, Huang’s comments on the earnings call will also be closely monitored. Earlier this month, the chief executive called the selloff in software stocks on disruption concerns “the most illogical thing in the world.” Since then, the fear-based selling has spread to dozens of other companies in a wide range of sectors, including wealth management and real estate services.

A positive reception for Nvidia could help boost sentiment for the AI pain trade, according to Rahbari. “If Nvidia comes out and says, we’re positive on this entire space, on this structure,” he said, “I think that rising tide lifts all boats, including software.” Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site.

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Summary

This report covers the latest developments in artificial intelligence. The information presented highlights key changes and updates that are relevant to those following this topic.

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