Nvidia: Tech stocks ‘at the mercy’ of chipmaker’s results

Nvidia’s quarterly earnings results this week are set to define the trajectory of the entire tech market, analysts have warned, adding that the fallout from the update by the world’s third largest listed company might be felt across the entire global economy.

“Big picture, the overall tech/AI theme arguably looks at the mercy of Nvidia’s earnings release next week,” analysts at Barclays wrote in a note ahead of the firms quarterly results on Wednesday.

The earnings report, which will be published alongside guidance for the next quarter, comes as Nvidia has almost recovered from the 25 per cent drop in its share price that happened in July, when fears of a US recession and the viability of the AI-linked firms rattled global markets.

The company is now climbing back towards its all-time high stock price, having grown 170 per cent since the start of 2024, and almost 700 per cent in the last two years.

Nvidia’s first blowout earnings and orders report two years ago were “arguably the first concrete evidence the AI theme could deliver hard revenue growth,” the Barclays analysts said, adding that the company’s strength has essentially kept the US tech market going since then.

However, this has left the market vulnerable to a ripple effect among tech companies, and with the sector now being weighted so heavily in market indexes, that could send shock waves through the global economy.

The options market currently suggests that its share price could move up or down by as much as nine per cent when it releases its earnings this week, with Chris Weston, head of research at Pepperstone, adding that we can “certainly expect some punchy post-market movement in the share price”.

“Nvidia will beat consensus expectations, they always do,” Weston said, but warned that investors “are so ingrained” in seeing massive numbers that it will need to beat consensus estimates to prevent a sell-off.

Analysts are currently expecting sales to come in at $28.8bn, with guidance for the next quarter of $31.8bn, but Weston argued that real expectations would be at least a billion dollars higher.

Meanwhile, operating profits are expected to more than double to $18.7bn.

“Chief executive Jensen Huang set a higher bar still for the second quarter of this fiscal year, guiding toward further sequential improvement in the top line alongside the first-quarter results, although he was a little more cautious on near-term costs and profits,” Dan Coatsworth, an investment analyst at AJ Bell, said.

Beyond the headline figures, the market will also be looking for any guidance on potential delays to the next generation of its chip stack, which could impact revenue expectations for next year.