(Bloomberg) — Stocks hovered near all-time highs as traders awaited results from Nvidia Corp. to determine whether the euphoria surrounding artificial intelligence that fueled the market’s bull market will last much longer.
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Just a day before the giant chipmaker is set to earn an earnings call, investors are bracing themselves to see whether the AI darling will at least match Wall Street’s lofty estimates. Given its outsized influence on broader indexes, Goldman Sachs Group Inc.’s trading desk once called Nvidia “the most important stock on planet Earth.” A member of the “Magnificent Seven” group of mega-caps, the company is responsible for more than a third of the Nasdaq 100’s gains this year.
Investors are bracing for big swings in Nvidia’s stock when the company reports earnings on Wednesday. Options trading suggests investors see potential for a 9% move in either direction the day after the report, according to Vishal Vivek, Citigroup Inc.’s chief financial officer. The stock has risen more than 150% this year and is up 1,000% from its bear market low in October 2022.
“Nvidia’s earnings report may actually have more impact on the overall market than Jerome Powell’s speech in Jackson Hole last week,” said Anthony Saglimbene at Ameriprise Financial. “Step aside, Powell. It’s Jensen Huang’s turn to move the markets,” he noted, referring to Nvidia’s boss.
Wolfe Research’s Chris Senyek believes Nvidia’s results will set the tone for markets ahead of key payrolls due out on September 6.
“We remain optimistic, but the risks are now tilted to the downside in the very near term. From a seasonal perspective, we are entering a weaker period that becomes even stronger in election years,” Senyek said.
The S&P 500 hovered around 5,620. The Nasdaq 100 rose 0.3%. Nvidia climbed 1.5%. The small-cap Russell 2000 fell 0.8%.
The 10-year Treasury yield rose two basis points to 3.84%. A $69 billion U.S. sale of two-year notes stalled at the lowest yield since 2022. Oil fell as technicals suggested a three-day rally fueled by threats of a Libyan supply freeze was overdone.
With questions about Federal Reserve policy, the state of the economy and the U.S. presidential race, at least one thing seems clear on Wall Street: AI spending still matters. Concerns about the returns on that investment contributed to a recent tech sell-off, though that dip was quickly bought.
Companies that make AI hardware and chips have been the driving force behind the Nasdaq 100’s rally from its August lows, with Nvidia up about 30%.
Nvidia accounts for more than 6% of the S&P 500’s market cap in terms of its index weighting, so “it’s increasingly a bigger part of where the trend and momentum of the market is going,” Matt Stucky of Northwestern Mutual Wealth Management told Bloomberg Surveillance. If the giant chipmaker doesn’t deliver, or even meet expectations, “I think it’s more of a risk-off environment,” he said, “not necessarily fuel for rotation.”
Analysts on average predict that the giant chipmaker will forecast revenue growth of more than 70% for the current quarter. Some estimate an even higher increase. Nvidia’s results and outlook will also serve as a barometer for AI spending across much of the technology sector.
While there have been reports that some versions of Nvidia’s new Blackwell chip line have been delayed, most analysts believe there is enough demand for current products to make the hiccups insignificant. The company has yet to comment on the matter.
“Nvidia is likely to beat consensus and raise its third-quarter guidance, with sales topping estimates by a single-digit percentage,” said Kunjan Sobhani of Bloomberg Intelligence. “But concerns about Blackwell chip delays could raise expectations for fiscal 2025, making management’s comments — particularly a reassuring 2025 guidance — crucial.”
Despite the potential near-term volatility in the technology sector, the AI growth story remains intact, says Mark Haefele of UBS Global Wealth Management.
“Nvidia’s results this week and Apple’s upcoming iPhone launch will be key catalysts to watch. Without naming any, we maintain our positive outlook for quality AI beneficiaries in the semiconductor and software industries,” Haefele said.
It’s hard to think of a time in the past when the market was so focused on the profits of one company, but that’s the case with Nvidia and, to a lesser extent, Broadcom Inc., according to Strategas’ Ryan Grabinski.
“Their respective earnings results will be a significant catalyst for the broader market in both directions,” he said. “A miss by Nvidia — which has an EPS contribution of 4.6% — could significantly impact estimates. Broadcom, which reports next week, contributes 1.6%. A less material EPS contribution, but just as important for ‘AI enthusiasm.’”
According to data compiled by strategists at Bespoke Investment Group, Nvidia has suffered an average decline of 38% over its history.
“Our goal here is not to suggest that Nvidia is doomed, but to temper expectations,” Bespoke said. “A repeat of the 1,000%+ gains Nvidia has already experienced is virtually impossible, and extreme pullbacks in a volatile stock like this can happen at any time.”
With earnings season winding down, BI notes that AI mentions in Q2 earnings appear to have declined quarter over quarter. That’s likely because companies Nvidia and Salesforce Inc. have yet to report results.
“Recession referrals among S&P 500 management and in analyst calls rose quarter over quarter for the first time since 2Q22,” said the BI strategists led by Gina Martin Adams. “Yet macro issues took a back seat to AI and the consumer.”
On the economic front, figures showed that US consumer confidence rose to a six-month high in August as more positive expectations about the economy and inflation offset declining optimism about the labor market.
While the S&P 500 is now near all-time highs again following Powell’s recent dove-like message, underlying risk premia are still slightly wider than before the correction began in July and the previously dominant “AI” narrative has yet to fully recover, according to Jonas Goltermann of Capital Economics.
“If the US economy manages a soft landing, as we continue to expect, and enthusiasm around AI continues to pick up, we predict the S&P 500 will hit 6,000 by year-end,” he said.
BI’s Adams said while the recent rally in government bonds has helped bring the relative value of stocks and bonds back toward their long-term averages, stocks still aren’t very attractive from a yield perspective.
The S&P 500 equity risk premium — the spread between the earnings yield on stocks and the yield on the 10-year Treasury — is back in positive territory, Adams noted. However, right at its long-term average, it is still too low to support the idea of strong future returns, as it did in the 2010-19 bull market, she noted.
“The combination of higher bond yields and equities near record highs suggests only average future returns for stocks – a stark contrast to the double-digit annual returns that characterized the post-financial crisis era – but still positive,” the strategist concluded.
Company highlights:
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Exxon Mobil Corp. is looking to sell a package of conventional oil assets in the Permian Basin as the company focuses on growing shale gas production after buying Pioneer Natural Resources Co. earlier this year.
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Meta Platforms Inc. CEO Mark Zuckerberg has claimed that Facebook was “pressured” by the US government to censor content related to Covid-19 during the global pandemic and that he regrets the company’s decision to comply.
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JD.com Inc. plans to buy back up to $5 billion of its own shares as it seeks to appease investors worried about a worsening recession among Chinese consumers.
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Super Micro Computer Inc. fell after Hindenburg Research reported the company has abandoned the server equipment maker.
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Cava Group Inc. fell after the Mediterranean restaurant chain’s largest individual shareholder and a group of executives filed to sell shares.
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Eli Lilly & Co. is now selling vials of its blockbuster weight-loss drug Zepbound to patients for just $399 a month, as the company attempts to address the shortage of the wildly popular vaccines.
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Burberry Group Plc is set to leave the FTSE 100 Index, ending the luxury goods maker’s 15-year presence in Britain’s top index.
Important events this week:
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Nvidia Earnings, Wednesday
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Fed’s Raphael Bostic and Christopher Waller to speak Wednesday
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Eurozone consumer confidence, Thursday
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US GDP, Initial Jobless Claims, Thursday
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Fed’s Raphael Bostic to speak Thursday
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Japan unemployment, Tokyo CPI, industrial production, retail sales, Friday
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Eurozone CPI, unemployment, Friday
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US Personal Income, Spending, PCE; Consumer Confidence, Friday
Some of the major moves in the markets:
Shares
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The S&P 500 rose 0.1% as of 1:15 p.m. New York time
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The Nasdaq 100 rose 0.3%
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The Dow Jones Industrial Average fell 0.1%
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The MSCI World Index rose 0.1%
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Bloomberg Magnificent 7 Total Return Index fell 0.2%
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The Russell 2000 Index fell 0.8%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro rose 0.1% to $1.1176
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The British pound rose 0.4% to $1.3245
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The Japanese yen rose 0.3% to 144.06 per dollar
Cryptocurrency
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Bitcoin fell 2.9% to $61,619
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Ether fell 4.3% to $2,573.5
Bonds
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The yield on 10-year government bonds rose two basis points to 3.83%
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The German 10-year yield rose four basis points to 2.29%
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The UK 10-year yield rose nine basis points to 4.00%
Raw materials
This story was produced with the help of Bloomberg Automation.
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