(Bloomberg) -- Nvidia Corp.’s earnings are set to dictate whether artificial intelligence can regain its status as the key driver behind Wall Street gains — or trigger more weakness after the Magnificent Seven group of technology stocks fell into correction territory.
The chipmaker’s fourth-quarter earnings, due after Wednesday’s close, may be its most critical yet, coming after China-based startup DeepSeek scrambled the outlook for AI infrastructure needs. Investors are bracing for heightened volatility, with options data showing the implied move in the stock is 9.9% in either direction, the most on an earnings day since 2022.
While Nvidia shares had been trending higher this month, they remain below their pre-DeepSeek levels. Investors have been more reluctant to buy this dip than previous selloffs, and hedge funds have sold tech of late. It’s also the first time since 2022 that Nvidia will report earnings with shares down since its last report.
“DeepSeek opened our eyes to the fact that Nvidia is not invincible,” said Shana Sissel, chief investment officer at Banrion Capital Management, who expects muted results from the chipmaker this quarter. Nvidia shares rose as much as 5.6% in intraday trading on Wednesday before paring some of those gains.
“The other tech companies that have reported have been broadly pessimistic and the AI parts of the business were in some cases the most negative parts,” she added. “I’m feeling pretty cautious, and am not overly optimistic that this will be the kind of report we’ve seen a lot from Nvidia over the past year and a half. That could lead to a massive selloff.”
DeepSeek’s emergence in January blew a hole in what had been one of Wall Street’s sturdiest trades: that developing AI would require massive investments in computing power and related infrastructure, notably the kind of chips Nvidia specializes in. The China-based firm claimed performance that is comparable to US models despite requiring far fewer chips and less computing power.
The latest hiccup for tech stocks came after TD Cowen wrote that Microsoft Corp. has begun canceling leases for a substantial amount of data center capacity in the US, a move that may reflect concerns about whether it’s building more AI computing than it will need over the long term.
Still, a key theme of megacap tech reports this earnings season — including from Nvidia customers Microsoft, Amazon.com Inc., Alphabet Inc., and Meta Platforms Inc. — is that they all affirmed or notably boosted their capex plans, suggesting they’re not primed to turn off the spigot to Nvidia products.
“This quarter we’ve seen increases to capex numbers that were already dramatic, and what gives me encouragement is that the companies providing the majority of the spend and AI infrastructure are the strongest companies in history, which speaks to the sustainability of this trend,” said Nick Rubinstein, technology equity portfolio manager at Jennison Associates.
According to data compiled by Bloomberg, the analyst consensus for Nvidia’s net 2026 earnings has stayed steady over the past quarter, while the view for revenue is up about 2%, a sign Wall Street firms aren’t trimming their estimates on account of DeepSeek or anything else. In Wednesday’s release, analysts expect Nvidia to report more than $38 billion in quarterly revenue, a 73% increase from the same period a year earlier.
The steadiness with estimates, coupled with a stock that is down since its last report, has diminished what had been one of the biggest sticking points about Nvidia: its valuation. Shares currently trade at 28 times estimated earnings, below their 10-year average, and not far from the Nasdaq 100 Index, which carries a multiple near 26.
“What’s important to recognize is that this is no longer an expensive stock,” said Jennison’s Rubinstein. “Considering the growth is north of 20%, I think the multiple is relatively fair.”
Wall Street remains widely positive on Nvidia, as nearly 90% of the analysts tracked by Bloomberg recommend buying, while just one firm — Punto Research — has a sell rating. The average analyst price target points to upside of 38% over the coming 12 months, among the highest implied returns among components of the Philadelphia Stock Exchange Semiconductor Index.
“It’s really not hard to back into an upside case for Nvidia,” said Matt Stucky of Northwestern Mutual Wealth Management, who is optimistic about the growth potential of the company’s Blackwell chip, among other factors. If investors’ concerns “were to dissipate, that’s where you start to see some multiple expansion.”
Tech Chart of the Day
Seven of the biggest companies that have powered the majority of the S&P 500 Index’s gains over the past two years are having a difficult start to 2025. The Bloomberg Magnificent 7 index, an equal-weighted gauge that consists of Apple Inc., Nvidia Corp., Microsoft Corp., Alphabet Inc., Amazon.com Inc., Meta Platforms Inc. and Tesla Inc., has fallen more than 10% from a December high, passing the threshold that meets the definition of a technical correction.
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