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Nvidia's (NVDA) earnings are coming up on Wednesday, and its stock is now tightly correlated to broader market moves.
Yahoo Finance Markets and Data Editor Jared Blikre, who also hosts Yahoo Finance's Stocks in Translation podcast, explains why the impact of Nvidia's earnings on the tech sector could pose a risk for investors.
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Investors want to know, is now the time to buy tech, especially with Nvidia's make or break earnings just days away? Now lately, Nvidia has been driving over 10% of tech sector returns and nearly 6% of the entire S&P 500. I'm Jared Blickery, host of Stocks and Translation. Check out this chart here. Relative strength and Nvidia. This is against the Spider XLK. So Nvidia divided by XLK, from 2016 through 2023, Nvidia was tech's unstoppable force, riding the AI wave higher. But notice the shift over the past year. The ratio has flattened out. Those pink dots, those are earnings dates. And the last four reports did not create new highs in relative strength, as they have in recent years. So the question for investors is, is Nvidia losing its edge? Now let's take a look at correlation. How closely tech tracks Nvidia at 0.85, and it only goes up to one. This is near the highest levels since the AI boom kicked off. Tech stocks now move in Nvidia's shadow. That means if Nvidia misses, the whole sector feels the pain. And if you're underinvested, when Nvidia soars, you miss out big time. So combine both of these charts, and you can clearly see stalling leadership and sky high correlation. They spell asymmetric risk ahead of the earnings print. If Nvidia delivers a blowout, then tech likely moves higher, but the gains might not be broader. So, if Nvidia disappoints, expect tech stocks to drop in lockstep. The bottom line for investors, short-term traders might scale in or hedge ahead of the report, but longer-term investors, ask yourself, is Nvidia still the engine of tech, or has it turned into a potential liability? We'll find out next week. Tune into Stocks and Translation for more jargon-busting deep dives. New episodes on Tuesdays and Thursdays on Yahoo Finance's website or wherever you find your podcast.
