Nvidia earnings will test investors' AI addiction

Good morning! This morning we’re covering what may end up being the wildest day of the quarter — Nvidia earnings, and what must go right and wrong for the AI giant. First time reading? Join 190,000 self-directed investors gaining an edge every morning. Sign up here.

Nvidia comes due

Nvidia’s earnings don’t just move markets — they are the market.?

The latest results, due Wednesday after the closing bell, will represent more than a marginal company update. They’ll provide a litmus test of whether the artificial intelligence trade has room to run, and the results will likely determine the mood for the rest of the S&P 500.??

Nvidia has been investors’ favorite stock since ChatGPT debuted in November 2022, and its blistering shareholder returns have propelled the multi-trillion dollar AI boom.?

The stock has tumbled nearly 10% in the week leading up to its fourth-quarter report, though it remains up roughly 60% over the last 12 months.?

3 pressure points

Several months of new developments in trade, geopolitics, and AI breakthroughs create new risks for Nvidia.?

1. Washington is coming for chips: President Trump is weighing tighter export bans on China, Nvidia’s second-largest market. The company could shrug it off in the short-term, but any long-term decisions could force China to innovate with home-grown technology, eventually undercutting Nvidia’s monopoly.?
2. Blackwell delays: Nvidia’s next-gen chip is widely expected to keep the AI boom rolling, but rumors of overheating and production snags have swirled. Any negative surprises here could send investors packing.
3. DeepSeek’s impact: The small Chinese startup roiled the US tech scene when it claimed to have built a ChatGPT competitor for 1 percent the cost. Even if that is only half true, companies have started to question whether they really need to spend so many tens of billions on AI, which ultimately impacts Nvidia’s business.

One obvious outcome is that earnings weakness drags the stock down.?

There is a chance, though, that negative news doesn’t move the stock as much as usual because its share price has traded flat for months, according to Steve Sosnick , chief strategist of Interactive Brokers.

He highlighted how the stock move after each of the last six earnings announcements:?

• +0.53%
• -6.38%
• +9.32%
• +16.4%
• -2.46%
• +0.1%

That tracks for an average of a 5.87% gain after earnings.?

For what it’s worth, Nvidia’s Tuesday closing price of $126.63 remains well below the majority of analysts’ price targets, as the chart from OpenBB illustrates.

To Bloomberg Intelligence analysts, Nvidia is likely to meet Wall Street’s expectations on revenue and raise its guidance for the year ahead as it appears on track for record revenue of $130 billion in 2025 and another 50% higher in 2026.

“Even after authorizing an additional $50 billion in share repurchases in August, voracious demand driven by a boom in generative AI could create a near best-in-class $350 billion of free cash flow over the next three years,” said Robert Schiffman , Bloomberg Intelligence’s senior credit analyst.?

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