The semiconductor company, whose chips are considered the
gold standard in the AI industry, forecast fiscal first-quarter revenue above
estimates after the market closed on Wednesday in one of the most highly
anticipated earnings releases in recent memory.
Given the company’s status as a bellwether of the AI
industry and its heavy weighting in U.S. indexes, the way investors react to
its earnings report in coming days could offer a glimpse of whether risk
appetite continues to thrive in a stock market that has cruised to record highs
despite climbing Treasury yields and fading hopes that the Federal Reserve will
begin cutting rates in coming months.
“The response to the numbers could be seen as a referendum
on the market itself,” said Paul Marino, chief revenue officer at
GraniteShares, which manages exchange traded funds tied to Nvidia’s
performance. “If Nvidia beats expectations and the stock still falls, that will
tell us that people are anxious.”
Nvidia shares tripled in 2023 and are up nearly 40% this
year on growing excitement over the business potential of artificial
intelligence. That’s made it a standout performer among the so-called
Magnificent Seven group of growth and technology stocks that have been the
market’s key drivers over the past year.
Nvidia eclipsed the $1 trillion mark for market
capitalization in the middle of last year. Earlier this month, it passed Amazon
and Alphabet to become the third-largest U.S. company by market value, although
its recent pullback put the company back in fifth.
The company's heftier market value has given it significant
sway in key indexes, including the S&P 500. As of Tuesday's close, Nvidia's
soaring shares have accounted for more than a quarter of the 4% gain in the
index, which hit a record high earlier this month.
Nvidia's rise comes as the company has put up big increases
in revenue and profit amid an artificial intelligence boom that has fueled
demand for its chips. Revenue more than doubled to over $60 billion in its
latest fiscal year, while net income soared to nearly $30 billion.
Rapid increases in analysts' earnings estimates means its
forward earnings valuation has fallen even as its share price has exploded
higher.
The company traded at 31 times forward earnings ahead of
Wednesday's report, compared to 47 times earnings a year ago, LSEG data showed.
Nvidia options late Wednesday were pricing a swing of about
10% in either direction in the two trading days following its results,
according to data from options analytics service Trade Alert. A 10% move in
Nvidia's nearly $1.7 trillion in market value would be roughly equivalent to
the current market cap of Qualcomm or Comcast.
Nvidia's shares soared 14% and 24% in the day following its
quarterly reports in February and May last year, but the stock's reaction has
been more tepid in recent quarters.
Options wagers on where Nvidia shares could go in the next
few days ran the gamut, with some traders targeting a drop below $500 by the
end of this week while others are betting on a move to $1,300 by Friday, a near
double. Nvidia’s shares closed at $674.72 on Wednesday.
While Nvidia has been the poster child for AI, it has not
been the only stock to benefit from excitement over the technology. Shares of
companies such as Super Micro Computer and Arm Holdings have jumped in recent
weeks, although both stocks have pulled back recently.
Even beyond the semiconductor and technology fields,
companies across industries have playing up their exposure to AI. Artificial
intelligence has been mentioned on 38% of S&P 500 quarterly conference
calls in January and February, a slightly higher percentage than during the
June quarter, when AI took hold as a prominent industry and market theme. -Reuters