Nvidia Results: Key Indicator for U.S. Stock Market Direction

By Lewis (JO:LEWJ) Krauskopf

NEW YORK (Reuters) – Nvidia Corp (NASDAQ:NVDA)'s upcoming results may influence the U.S. stock market's trajectory as investors shift focus to technology and artificial intelligence following a stalled election-fueled rally.

Nvidia has seen a nearly 800% rise in share price over the last two years due to its industry-leading AI business, elevating the company to the highest market value worldwide.

This market position grants Nvidia significant influence over indexes like the S&P 500 and Nasdaq 100. Its earnings report on Nov. 20 will serve as an indicator of investor sentiment toward tech stocks and AI. Following the Nov. 5 U.S. election results, the S&P 500 has retreated from record highs, prompting the market to seek direction.

Garrett Melson, a portfolio strategist at Natixis Investment Managers, noted that strong results from Nvidia could indicate sustained investment momentum, potentially broadening the risk appetite.

Nvidia's stranglehold on the AI market has driven a remarkable financial performance, with expectations for the fiscal third quarter showing net income of $18.4 billion and over 80% revenue growth to $33 billion, according to LSEG data.

However, beating earnings estimates has become more challenging for Nvidia; it surpassed estimates by only 6% last quarter.

Mark Luschini, chief investment strategist at Janney Montgomery Scott, remarked, "It's getting harder to hurdle those expectations."

Nvidia’s performance caps a mixed earnings season for U.S. companies, with S&P 500 earnings projected to rise 8.8% year-over-year, and 76% of companies surpassing estimates—slightly lower than the previous average of 79%.

A select group of major tech companies, including Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT), have significantly contributed to earnings growth, with projections showing these 'Magnificent 7' companies' earnings up by 30% in the third quarter, compared to just 4.3% for the remaining S&P 500 companies.

Luschini pointed out that Nvidia and its peers are vital for sustaining the stock market's growth amid high valuations, with the S&P 500's forward price-to-earnings ratio above 22, near a three-year peak. The index has surged 23% this year, initially benefiting from optimism over Donald Trump's second-term victory, but faced recent pullbacks as investors assess post-election impacts.

Attention will remain on Trump's transition plans and cabinet selections, as initial appointees have created volatility in various sectors. Furthermore, Federal Reserve Chair Jerome Powell's comments on interest rates signal potential market challenges ahead. Matthew Maley, chief market strategist at Miller Tabak, noted that the Fed's stance could present headwinds given the current expensive market climate.